Emerging market outflows hit $33.8 billion, US midterms offer some relief

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The outflow compares with a revised $19.3 billion net outflow in September and a $27.4 billion inflow in October last year, according to IIF data.

Equities accounted for nearly all of October's total, with net outflows of $31.7 billion, including nearly $32 billion out of Taiwan. Debt saw a net outflow of $2.1 billion, as $7.2 billion of inflows into bonds outside China partly offset a $9.3 billion outflow from Chinese debt, the largest since May.

Tuesday's US midterm election results have reinforced expectations of lower Treasury yields and a weaker dollar, potentially reducing borrowing costs and easing pressure on emerging market currencies.

"The (October) outflows came alongside lower US yields and a broadly stable dollar, which we read as a sign that equity risk appetite and country specific shocks were the main sources of pressure over the month," IIF senior economist Jonathan Fortun wrote in a report.

However, Asian tech stocks could face further pressure as investors scrutinize the sector's growth prospects, while markets have priced in a 25-basis-point Federal Reserve rate hike next month, the IIF said.

Third-quarter earnings from large technology firms raised questions about how quickly AI investments will pay off, the report added.

A widely followed index of chipmakers tumbled 15.4% in October while MSCI's emerging markets index lost 8.1%. South Korea and Taiwan were among the biggest decliners, with their benchmark indexes falling 16.2% and 5.7%, respectively, after gaining 62% and 66% in the first nine months of the year.

Foreign investors sold $31.8 billion of Taiwanese stocks in October, the largest monthly outflow in IIF data going back to 2000, and $14.6 billion of Korean shares, even as earnings estimates for Korea and Taiwan were revised up in October. The IIF pointed to investors cutting large positions after a year of strong gains.

Net EM equity outflows stand at $127.4 billion year-to-date, versus $18.5 billion a year earlier, while debt inflows are at $263.3 billion versus $272.4 billion.

Total net inflows so far in 2026 total $135.9 billion versus $254.0 billion in 2025.

Emerging Asia accounted for $28.7 billion of October's total net outflow, with Chinese stocks posting a $5.0 billion outflow, and Indonesia under pressure from the threat of a downgrade to its emerging market status in stock benchmarks. Latin America shed a net $1.7 billion as Brazil's election whipsawed markets.

"We see scope for EM ex-China debt inflows to continue as long as the 10-year Treasury yield stays below its early October peak of 5.30%," the IIF's Fortun wrote.