Foreign investors pulled almost $50 billion out of Asian stock markets in October, with Taiwan and South Korea bearing the brunt of the selling. The retreat reflects a one-two punch: growing skepticism about the profitability of AI-related spending and a jump in US Treasury yields that makes bonds more attractive relative to stocks.
According to LSEG data cited by Reuters, overseas investors sold a net $49.77 billion of shares across several Asian markets in October, the largest monthly outflow since June. The selling has continued into November, with another $22.6 billion exiting so far this month.
Taiwan and South Korea hit hardest
The outflows were concentrated in the region's tech-heavy markets. Foreign investors dumped $30.68 billion of Taiwanese stocks in October—the biggest monthly outflow there since at least January 2008—and $14.59 billion of South Korean shares. Both markets have seen further selling this month.
Taiwan and South Korea are home to some of the world's largest semiconductor and electronics companies, including TSMC and Samsung. When global funds sell these stocks, the impact can ripple through global tech benchmarks, given the outsized weight of these firms in indices like the MSCI Asia ex-Japan and the global semiconductor complex.
Two forces driving the exodus
The first is a reassessment of the AI trade. Big cloud companies are spending heavily on data centers to support artificial intelligence, but some investors are questioning when that spending will translate into reliable profits for chipmakers and other suppliers. The concern is that the massive capital outlays may not generate the expected returns, at least not as quickly as hoped.
The second force is the rise in US Treasury yields. When the 10-year US Treasury yield touched 5.3% in early October, it made bonds more competitive with stocks. Higher yields also push up the discount rate used to value future corporate earnings, which tends to weigh most on companies whose expected profits sit further in the future. That is a particular problem for AI- and semiconductor-linked names, which investors often treat as “long-duration” growth stories—meaning their value depends heavily on profits expected years down the road.
What it means for investors
For everyday investors, the outflows are a reminder that global capital flows can shift quickly, and that markets like Taiwan and South Korea are especially sensitive to changes in US interest rates and sentiment toward technology. When foreign funds sell local shares, they often convert the proceeds back into US dollars, which can weaken local currencies and reduce unhedged dollar returns. That dynamic can encourage further outflows, creating a self-reinforcing cycle.
Until either US yields cool or confidence returns in AI-related spending and profitability, these markets may find it harder to stabilize. Investors with exposure to Asian tech stocks—whether through individual shares, ETFs, or mutual funds—should be prepared for continued volatility.
It's also worth noting that the outflows are not uniform across Asia. Some markets, like India, have seen foreign inflows at times, as investors seek alternatives. For example, foreign investors have returned to Indian stocks in recent weeks, helped by falling oil prices and a strong domestic outlook. Similarly, foreign inflows have supported the Indian rupee, even as the Federal Reserve signals it may keep rates higher for longer.
The broader backdrop remains one of elevated US yields and uncertainty about the pace of AI adoption. As hot US inflation has lifted the dollar, Asian currencies have come under pressure, adding to the headwinds for regional markets. And while China's stocks have slipped as rate fears offset Beijing support measures, the region as a whole is feeling the pinch.
For now, the key variables to watch are US Treasury yields and any signs that AI-related capital spending is translating into earnings. If yields ease or companies show that AI investments are paying off, the selling could abate. Until then, investors should expect continued turbulence in Asian tech markets.
