West Asia conflict: Record India outflows, GEM flows negative as markets enter ‘no-buyer phase’, says report

Global emerging market (GEM) fund flows have turned negative for the first time in months, while India-focused funds have witnessed record outflows, signalling rising risk aversion among global investors as geopolitical tensions and tightening liquidity conditions weigh on markets, according to the latest Global Liquidity Tracker report by Elara Capital.

The report said GEM fund flows slipped into negative territory for the first time since October 2025, largely due to foreign redemptions from China, India and Taiwan. Although the magnitude of outflows remains modest compared with earlier inflow cycles, the shift in trend suggests investors are turning cautious as global uncertainty rises.

India has been among the worst hit, with dedicated India funds seeing about $1.2 billion of outflows in a single week, the largest withdrawal since June 2022. The selling was led by exchange-traded fund (ETF) redemptions, including heavy withdrawals from US-listed ETFs, while long-only funds also saw significant outflows. In percentage-of-assets terms, the report said the scale of outflows is comparable to previous periods that preceded market corrections.

Elara warned that the bigger concern for markets is not aggressive selling but the absence of fresh buyers. The report described the current phase as a “no-buyer market”, a condition that historically appears before the final leg of a correction, often followed by capitulation and eventual bottom formation. Investor behaviour is showing early signs of risk aversion, although panic selling has not yet begun.

Weakening of global liquidity

The weakening of global liquidity is occurring at a time when geopolitical tensions have escalated, increasing uncertainty across asset classes. According to the report, the ongoing conflict in West Asia has started to affect fund flows, with investors shifting towards safer assets and reducing exposure to emerging markets. Similar patterns were seen during earlier periods of global stress, including the Russia-Ukraine conflict and tariff-related volatility in 2025.

US equities

Flows into US equities have also turned negative, with foreign investors pulling about $4.5 billion, marking the largest monthly outflow since April 2025. High-yield bond funds, which are often seen as an early indicator of risk appetite, recorded their biggest outflow in nearly a year, reinforcing the view that global investors are moving into a defensive stance.

Commodity flows

Commodity flows, however, showed a mixed trend. Energy-related funds continued to attract inflows due to rising oil price risks linked to the conflict, though the pace of buying slowed after a strong surge in the previous week. Gold funds saw modest inflows, reflecting safe-haven demand, while silver funds remained under pressure with continued outflows.

The report noted that past cycles of sustained outflows have often been followed by a sharp but short-lived decline before markets stabilise. During earlier episodes, including the 2022–23 period of geopolitical stress, prolonged redemptions eventually led to capitulation, after which markets formed durable bottoms.

Elara said the current trend suggests that markets may be entering a similar late-stage correction phase, where liquidity fades, risk appetite weakens, and volatility rises before a clearer direction emerges.