FIIs trim stock exposure across Asia, yet continue buying emerging debt
| Photo Credit:
iStockphoto
Foreign institutional investors (FIIs) have pulled significant amounts of money out of emerging market (EM) equities in 2026, engaging in either profit-booking or shoring their assets in perceived safe havens, with South Korea and India bearing the brunt of the sell-off.businessline analysis of ‘Bloomberg’ data shows that while investors have been reducing exposure to several Asian equity markets amid global uncertainty, capital has continued to flow into select EM bond markets, including India, highlighting a divergence in investor appetite between stocks and fixed-income assets.South Korea, India lead equity outflowsAmong major emerging markets, South Korea recorded the largest FII equity outflows, with net withdrawals of $32.6 billion quarter-to-date (QTD) during the April–June quarter and $69.6 billion year-to-date (YTD) in 2026. Incidentally, KOSPI (South Korea’s benchmark index) went from a price-to-earnings (P/E) ratio of 11.45 at the end of 2024 to a P/E ratio of 21.07 as of 29th May 2026, an increase of 9.62 points.According to Madan Sabnavis, chief economist, Bank of Baroda, "The selling of South Korean equities appears to be a case of profit booking. Earlier, quantitative easing was there, from which the Asian markets benefited. Now, following tightening, the Western economies appear more attractive to FIIs. This is more in the case of the US, which, following tariffs and other protective measures, appears stronger, in spite of higher inflation. As a result, reallocation of resources is happening, whereby FIIs are booking their profits in Asian markets like Korea, where the company earnings can no longer justify their share prices.”Meanwhile, India witnessed $11.4 billion of net equity outflows QTD and $27.2 billion YTD. The contrast with Taiwan is striking. Taiwan attracted $19.6 billion of net equity inflows QTD, although its YTD inflow remained a modest $650 million. At present, TWSE (Taiwan’s benchmark index), with a P/E ratio of 29.26 as of 29th May 2026, is one of the most overvalued indices in the world.Other emerging markets also saw investors head for the exits. Indonesia recorded equity net outflows of $3.29 billion YTD, while Vietnam lost $2.44 billion in 2026 so far. Malaysia, the Philippines, Sri Lanka and Qatar also posted net outflows, although on a much smaller scale.Debt markets tell a different storyWhile equity investors have been pulling back, bond markets have remained comparatively resilient. South Korea emerged as the biggest beneficiary of FII debt net inflows, attracting $13.6 billion in the April–June quarter of 2026, as of 2nd June, and $30.7 billion YTD.India also received some foreign interest in debt, recording $120.9 million of net inflows QTD and $1.21 billion YTD. Further, on 5th May 2026, the central government reduced the withholding tax on foreign debt investments, while doing away with the capital gains tax for FIIs investing in government securities to attract foreign capital and stabilise the ₹.Elsewhere, Thailand attracted $725 million in net bond inflows QTD and $1.47 billion YTD, while Malaysia received $1.17 billion YTD despite a marginal quarterly outflow. Indonesia saw $830 million in inflows QTD, though it remained in net outflow territory for the year.Published on June 5, 2026
