SynopsisForeign investors returned to emerging markets in July, investing a net $18.8 billion in debt and equities after two months of outflows. Debt attracted $26.7 billion, while equities saw a $7.8 billion outflow. Asia recorded a sharp reversal, led by stronger debt flows, while China remained an exception. Record sovereign debt issuance also highlighted renewed investor appetite.TIL CreativesForeign investors returned to emerging-market portfolios in July, investing a net $18.8 billion in debt and equities and ending a two-month streak of outflows, according to data from the Institute of International Finance (IIF) cited by Reuters.The inflows marked a significant improvement from June, when emerging markets recorded a net outflow of $18 billion, and May, when investors withdrew $25.2 billion.Debt leads the recoveryDebt markets accounted for most of the July recovery, attracting $26.7 billion in foreign capital, while equities recorded a $7.8 billion outflow.The equity outflow was nevertheless substantially smaller than the $46.1 billion withdrawn in June, suggesting that selling pressure in emerging-market stocks eased considerably.The divergence between debt and equity flows has remained a key feature of emerging markets this year. Technology-heavy markets in Asia, particularly South Korea and Taiwan, have faced pressure as investors reduced exposure to parts of the technology sector.Through the first seven months of the year, emerging-market debt attracted $214.4 billion, up from $177.7 billion during the same period in 2025. Emerging-market equities, however, recorded an $86 billion outflow, nearly ten times the $9 billion withdrawn during the comparable period last year.Actively managed emerging-market debt funds also recorded net inflows for the first time since 2021, according to the IIF.Asia sees sharp reversalAsia recorded one of the biggest improvements in July, turning to a net inflow of $9.3 billion from a $27 billion outflow in June.The region's equity outflows narrowed to $4.8 billion from $40.5 billion in June, while debt markets attracted $14.1 billion.China remained an exception to the broader regional recovery. Foreign investors withdrew $3.7 billion from Chinese equities and $3.4 billion from debt markets. However, equity selling in China eased sharply from June.Record emerging-market debt issuanceStrong demand for emerging-market debt has coincided with a surge in government bond issuance. Emerging-market sovereigns issued around $19 billion in debt in July, roughly twice the average issuance for the month over the past decade, according to IIF data.Total emerging-market sovereign issuance for the year has reached about $187 billion, the highest level for this period on record.Relatively high yields and subdued currency volatility have supported demand for emerging-market debt. Sovereign bond spreads also narrowed in July to their tightest level in nearly two decades, according to the IIF.However, the environment remains vulnerable to changes in global monetary policy and geopolitical conditions. The IIF has warned that tighter U.S. monetary policy, further intervention involving the Japanese yen and geopolitical shocks could undermine carry trades that have supported demand for emerging-market debt.At the same time, weaker-than-expected U.S. employment data has raised questions about the Federal Reserve's interest-rate outlook. The U.S. economy unexpectedly shed jobs in July, adding to uncertainty over the central bank's next move on interest rates.For emerging markets, the July data point to a tentative improvement in foreign capital flows. However, the sharp divergence between strong debt inflows and persistent equity outflows suggests that investors remain selective.Read More News on(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price...moreless(You can now subscribe to our ETMarkets WhatsApp channel)Read More News on(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price...moreless