Global Capital Flees India for AI Markets in South Korea, Taiwan

Global investors are strategically reallocating capital towards AI-linked markets, notably South Korea and Taiwan, attracting substantial foreign inflows. This trend contrasts sharply with India, where India-focused long-only funds have faced persistent redemptions, largely driven by this global capital redirection.

Key Inflows and Redemptions

• South Korea attracted $3.5 billion in foreign capital.
• Taiwan registered a 23-week high inflow of $1.8 billion.
• These figures come from Elara Securities’ latest Global Liquidity Tracker.

The capital shift highlights a global investment cycle favoring AI beneficiaries, drawing funds away from traditional emerging markets like India. Investor preferences are clearly leaning towards regions with strong AI ties.

India’s Improving Relative Performance

Despite the ongoing outflows, India’s flow landscape shows signs of potential improvement. Since mid-June, India-focused long-only funds have demonstrated a notable outperformance against emerging-market long-only funds.

• India-focused funds outperformed by approximately 10%.
• This marks their strongest relative outperformance since February-April 2025.

This suggests a potential, albeit incomplete, shift in foreign investor sentiment, even without a full reversal of the selling pressure. The market is keenly watching for sustained positive momentum.

AI Trade Sustainability and Future Outlook

The sustainability of the current AI trade is increasingly under scrutiny. A significant portion of this trade has become crowded over the past three months, coinciding with a moderation in returns for these AI-linked investments.

While this correction has not yet triggered widespread redemptions, the critical question remains whether investors will maintain their positions if returns continue to be subdued. For India, a deceleration in this AI-driven capital rotation could alleviate the pressure from foreign outflows and further bolster its improving relative market performance.

The broader emerging-market flow environment remains highly dynamic, with future capital reallocations contingent on the evolving trajectory of the AI trade and investor preferences for its primary beneficiaries.