Foreign investors divested a record $137.36 billion from shares in South Korea, Taiwan, India, Indonesia, Thailand, Vietnam, and the Philippines during the first six months of 2026. This marks the fastest six-month outflow in LSEG data extending back to 2010. The exodus was largely driven by a blistering AI-driven rally, which prompted investors to trim their significant holdings in South Korean and Taiwanese chipmakers and seek out undervalued opportunities elsewhere.
South Korea and Taiwan were particularly affected, experiencing outflows of $70.8 billion and $29.6 billion, respectively. This reflects investor concerns over the rapid growth in these markets, with the KOSPI nearly doubling and Taiwan stocks rising 62% in the first half of the year. In June alone, foreign investors sold $27.08 billion worth of regional equities, including $12.63 billion from South Korea, $8 billion from Taiwan, and $5.91 billion from India.
The selling is attributed to investors questioning the sustainability of the AI-led rally, especially after sharp gains in semiconductor and memory stocks. The rally was heavily concentrated in three major chipmakers: TSMC, Samsung, and SK Hynix. This concentration risk led investors to reduce exposure to these top performers in an effort to rebalance their portfolios and find better value in other parts of the region or in markets outside of Asia. Analysts, such as Joshua Crabb of Robeco, noted that investors need to balance their exposure when only a few markets and sectors are outperforming.
While some analysts, including Kerry Craig of JP Morgan Asset Management, see this as a reassessment of technology exposure and a move towards diversification into themes like defense and renewables, others like Tim Waterer of KCM Trade, suggest it is a process of leveling the valuation playing field. This rotation out of tech stocks is expected to continue until there is more parity in valuations between high-flying semiconductor names and the rest of the market. BNY Mellon's analysis indicates that the selling by long-only funds is more about rebalancing and profit-taking rather than a complete rejection of South Korea's market.
