Global investors have pulled $11 billion from Asian emerging market equities, excluding China, in the past week, marking the largest outflow since March 2022, as escalating conflict in Iran prompts a reassessment of risk, according to data compiled by Bloomberg.
The sell-off was particularly pronounced on Taiwan, where investors withdrew a record $7.9 billion. South Korea saw outflows of approximately $1.6 billion, even as India experienced a decline of around $1.3 billion, the data show.
The capital flight contributed to a record one-day drop in South Korea’s Kospi index and triggered trading halts on several regional exchanges. The MSCI Asia Pacific Index has fallen by more than 6% this week, putting it on track for its largest weekly decline in nearly six years and its worst performance relative to the S&P 500 since April.
The shift in investor sentiment represents a reversal of a popular investment strategy that had gained traction in recent months – “Sell America, Buy Asia.” This strategy involved redirecting investments from expensive U.S. Stocks to Asian markets, driven by expectations of a weaker dollar, lower inflation, and demand for regional stocks linked to the artificial intelligence boom, particularly in the semiconductor sector.
“Global funds were buying Asian equities with expectations of a weaker dollar and benign inflation, but the conflict in Iran is questioning both assumptions,” said Gary Tan, a fund manager at Allspring Global Investments, as reported by Bloomberg.
Tan added that investors are now re-evaluating whether increased risk aversion will keep the dollar stronger for longer and whether higher oil prices could reignite inflationary pressures. The conflict is prompting a broad reassessment of risk on global financial markets, with funds actively reducing their exposure to Asian assets, according to Bloomberg reporting.
Some traders of liquefied natural gas were reportedly contacting their contacts overnight Monday to Tuesday seeking available supplies after Iranian attacks led to the closure of a major export plant in Qatar. Importers in China, India, and Japan have also inquired about alternative sources of oil and LNG, according to Bloomberg sources.
Regional refiners may be able to draw on oil reserves held in Kiire and Okinawa, Japan, as potential sources of supply, Bloomberg reported, citing the storage capacities of those facilities. Saudi Aramco currently leases tank capacity at both locations.
The escalating tensions in the Middle East are also impacting the energy market, with Asia urgently seeking new suppliers of oil and gas, according to Bloomberg.
