Foreign investors pulled a combined $31.7bn out of Asian bond and stock markets in September, with bond selling the heaviest since March 2020 and South Korea taking the biggest hit.
Foreigners sold a net $8.21bn of bonds in India, Indonesia, Malaysia, South Korea and Thailand, the largest monthly withdrawal since the $17.28bn that left in March 2020, according to a tally by Reuters of regional bond data published on October 16. A separate Reuters count of LSEG exchange data showed foreigners dumped a net $23.49bn of stocks in South Korea, Taiwan, India, Indonesia, Thailand, Vietnam and the Philippines, reversing net purchases of about $4.72bn in August.
The sell-off marks the moment the US rate cycle turned against emerging Asia. After the Federal Reserve raised rates in September for the first time since July 2023, Asian assets have had to compete with dollar paper paying more than 5%, and the money is moving even out of economies with sound fundamentals. The central banks left holding the problem face a choice between letting their currencies slide, and importing inflation at a time of high oil prices, or tightening into slowing economies.
“Higher dollar yields can therefore trigger capital outflows even from economies with relatively strong domestic fundamentals,” former National Bank of Ukraine governor Kyrylo Shevchenko wrote on X, summing the two sets of figures. “Exchange-rate flexibility helps absorb shocks. But currency depreciation can also increase imported inflation, particularly when energy prices are elevated.”
The trigger was the US bond market. The benchmark 10-year Treasury yield climbed 53.5 basis points in September and touched 5.3645%, its highest level since April 2002, as higher oil prices fed fears that inflation would stay elevated and the Fed signalled more hikes.
South Korea accounted for about $6.3bn of the bond outflows, its largest monthly net sale since March, when $7.25bn left. Thailand followed with $822mn, then India with $548mn, Malaysia with $436mn and Indonesia with $100mn.
Korea also supplied more than 70% of the equity outflows, as foreigners took profits after a powerful rally in AI-linked technology stocks. Indian shares lost $3.75bn after two months of inflows, Taiwan $1.28bn, Thailand $783mn, Indonesia $576mn and the Philippines $135mn. Vietnam was the only market to attract money, with modest inflows of $6.68mn.
“Major Asian equity markets experienced broad-based foreign outflows in September, consistent with typical market reactions to rising yields in developed markets and a strengthening USD,” Jason Lui, head of APAC equity derivatives strategy at BNP Paribas, told Reuters.
October brings no relief
The selling has carried into October. Foreigners took a further $4.81bn out of Korean stocks and $3.25bn out of Indian stocks in the first days of the month, according to the LSEG data, and the Kospi fell about 8% on October 15, tripping a circuit breaker, after US inflation accelerated to 3.7% in September.
The bond flight is an abrupt reversal for Seoul, where foreign investors had piled into government bonds after Korea began its phased entry into the FTSE Russell World Government Bond Index on April 1. The won has nonetheless held up: it closed at 1,335.1 per dollar on October 12, near a two-year high, as chipmakers converted export earnings, Korea JoongAng Daily reported. That cushion is not available everywhere.
In India, the rupee has been Asia's worst-performing currency in 2026, and the Reserve Bank of India announced its strongest support measures since the 2013 taper tantrum over the weekend of October 10-11, including a dedicated dollar window for state oil refiners, Bloomberg reported. Indonesia's rupiah briefly breached IDR18,000 per dollar at the end of September as foreigners sold local bonds.
There are tentative signs the bond selling is easing. The 10-year Treasury yield retreated towards 5.1% in mid-October, and foreign investors returned as net buyers of Thai bonds in the week to October 16, according to Kasikornbank. But with the Fed due to meet again on October 28 and markets pricing further tightening, “foreign flows are likely to remain under pressure in the near term,” Wael Makarem, lead financial market strategist at Exness, told Reuters.