Worst performance since November! Foreign capital dumps $3.4 billion, South Korea and Indonesia lead declines in emerging markets

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Emerging market assets are experiencing the most severe sell-off in over two months, with plunging technology stocks and falling commodity prices dragging down overall performance; South Korea and Indonesia are leading the declines.

The MSCI Emerging Markets Index dropped as much as 1.5% on Friday before paring losses, while a similar index tracking emerging market currencies was basically flat. Both indicators are set for their biggest weekly declines since November. South Korea’s Kospi Index tumbled as much as 5.1% on Friday, and Indonesia’s benchmark stock index fell as much as 3%, making them among the worst performers this week.

International capital is accelerating its exit. On Thursday, foreign investors sold a record $3.4 billion of South Korean stocks, highlighting immense pressure on risk assets.

Geopolitical concerns, uncertainty over Fed policy outlook, and ongoing worries about technology stock overvaluation have driven risk aversion in the markets. The rebound in the U.S. dollar has further increased pressure on emerging markets.

South Korea and Indonesia Hit Hard

South Korea has been the epicenter of this round of sell-off. On Friday, the Kospi Index followed the sharp decline in U.S. tech stocks, falling as much as 5.1% in one day.

Capital outflows from overseas have reached a historic high. On Thursday, international investors had a net sale of $3.4 billion in South Korean stocks in a single day, breaking previous records and reflecting that global investors are rapidly cutting their exposure to tech stocks. The sharp correction in U.S. tech stocks has directly impacted South Korea, where technological heavyweights make up a significant portion of the market.

Indonesian assets are also facing multiple pressures. The benchmark stock index fell as much as 3% on Friday, and the yield on the benchmark 10-year government bond jumped to its highest level since September. The widening of credit default swap (CDS) spreads was the largest in more than four months.

Ratings agency Moody’s downgraded Indonesia’s credit outlook, further undermining market confidence. Earlier, MSCI Inc. had also issued warnings about the investability of Indonesian stocks. Rajeev De Mello, global macro portfolio manager at Gama Asset Management, said the pressure on Indonesian assets may “continue until investors see specific measures addressing the concerns of each market.” Local currency and bond investors are searching for signs of fiscal discipline and central bank independence.

Risk Aversion Dominates the Market

A sharp deterioration in risk appetite has defined the tone for emerging markets this week. Concerns about tech stock overvaluation, geopolitical risks, and uncertainty over the Fed’s policy path have combined to drive investors out of risk assets. The strengthening U.S. dollar has also added pressure on emerging market currencies and assets.

However, some market participants see this adjustment as a healthy correction. Kiyong Seong, a strategist at Societe Generale in Hong Kong, said, “After this healthy correction, investors may become more selective, but I don’t think the stock market rebound is over. The AI-driven industrial and lifestyle transformation is a multi-year process that will continue to support earnings growth in key technology companies.”

The market is now watching to see whether policymakers in various countries will introduce measures to stabilize market confidence and whether follow-up signals from the Federal Reserve can ease uncertainty.

Risk Warning and DisclaimerThe market carries risks, and investments should be made cautiously. This article does not constitute personal investment advice, nor does it consider the specific investment objectives, financial situations, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular situations. Investing accordingly is at your own risk. ```