Asian equities see $50 billion foreign outflow as AI concerns hit tech-linked markets

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Asian equities $50B outflow

Highlights

Foreign investors withdrew a net $49.77 billion from South Korea, Taiwan, India, Indonesia, Thailand, Vietnam, and the Philippines in October, the largest outflow since June.
Taiwan and South Korea led October selling with net foreign outflows of $30.68 billion and $14.59 billion, respectively, as AI-linked concerns and U.S. regulatory risks intensified.
The MSCI Asia Pacific ex-Japan index fell 6.91% in October versus a 1.69% decline in the MSCI All Country World Index, amid investor rotation to developed markets and higher U.S. Treasury yields.

October selloff deepens across major Asian markets

As reported by Reuters, foreign investors withdrew a net $49.77 billion from equities in South Korea, Taiwan, India, Indonesia, Thailand, Vietnam and the Philippines in October, according to LSEG data. That is the biggest monthly net outflow since June and comes as concerns over AI infrastructure spending and regulation weigh on sentiment.

Democrats' victories in last week's U.S. midterm elections, including in states where opposition to new data centres has grown, keep those concerns in focus. So far this month, foreign investors have offloaded a further $22.6 billion from the seven markets.

Wael Makarem, lead financial market strategist at Exness, says the outflows reflect a retreat from AI-linked positions as doubts rise over AI infrastructure spending and profitability. He adds that, ahead of the U.S. midterm elections, tighter environmental reviews and regulations are seen as obstacles to data centre construction and chip demand.

Taiwan bears the brunt of the October selling, with foreign investors unloading a net $30.68 billion of stocks, the most since at least January 2008. South Korea records net foreign selling of $14.59 billion, and the two markets see additional outflows this month of $19.76 billion and $8.32 billion, respectively.

Asset reallocation shifts pressure across the region

Analysts say part of the pressure on Asian equities may stem from investors rotating money into developed markets. The MSCI Asia Pacific ex-Japan index falls 6.91% in October, compared with a 1.69% decline in the MSCI All Country World Index.

Scarlett Liu, Asia-Pacific equity derivatives strategist at BNP Paribas, says international investors may have been attracted by the relative resilience of the S&P 500 against the MSCI Asia ex-Japan benchmark during the month. She also says some investors may have raised allocations to U.S. Treasuries as the 10-year U.S. Treasury yield climbed to 5.3% in early October.

India posts a second straight month of foreign outflows in October, totaling $3.6 billion, although cross-border investors have so far put a net $5.68 billion into local equities this month. HSBC's head of equity strategy for Asia Pacific, Herald van der Linde, says the bank upgrades India to overweight because it sees resilient earnings and more reasonable valuations.

Elsewhere, Indonesian and Thai stocks record outflows of $938 million and $199 million, respectively, in October. Vietnamese and Philippine stocks, by contrast, post inflows of $122 million and $109 million.

Earlier, we looked at AI data center financing risks facing U.S. projects amid rising costs, delays, and power constraints.

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