While South Korea and Taiwan continue to attract significant capital driven by the AI hardware surge, mounting signs of market saturation suggest investors may shift their focus back to India, which is narrowing the gap in emerging-market allure.
Global investors are still rotating towards Asia’s artificial-intelligence winners, but the latest flow data suggest the trade may be losing some momentum. South Korea led the latest rebound in emerging-market inflows with $3.5 billion, while Taiwan drew $1.8 billion, its strongest pace in 23 weeks. Brazil and Mexico also saw firmer participation as their markets steadied near 200-day moving averages, and broader emerging-market funds recorded a six-month high of $4 billion as capital returned to the asset class.
The shift has left India under continued pressure. India-focused long-only funds have still been seeing redemptions, though the selling has eased. According to Elara, much of the pressure in 2026 has reflected money being redirected into the AI trade, particularly towards Taiwan and South Korea. Even so, India-focused long-only funds have outperformed emerging-market long-only funds by about 10% since mid-June, their best relative stretch since February to April 2025, which suggests the gap is narrowing in India’s favour.
South Korea’s appeal is being reinforced by hard investment data as well as portfolio flows. The Ministry of Trade, Industry and Energy said foreign direct investment notifications rose 9.1% year on year in the first half of 2026 to $14.3 billion, while actual inflows climbed 42.6% to $10.7 billion. Officials said the gains reflected interest in semiconductors, displays and other advanced industrial supply chains, underlining the country’s role at the centre of the AI hardware boom.
Taiwan has also remained a major recipient of foreign capital, with the central bank’s figures showing large stock-market exposure by overseas investors and repeated interventions to keep the foreign exchange market orderly. Its reserves stood at $605.49 billion in February before easing to $596.89 billion at the end of March and then rising to $602.49 billion in April. The central bank said foreign portfolio investors’ holdings of securities and Taiwan dollar deposits were worth 268% of reserves by the end of April, a reminder of how heavily foreign money still shapes the market. Yet Elara warned that the AI trade has become crowded over the past three months, just as returns have started to cool. If that enthusiasm fades further, India could benefit from a wider rotation back into markets that have been left behind.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
