India vs Taiwan, South Korea: Where is global capital heading next?

Global investors appear to be favouring parts of emerging Asia over India as the artificial intelligence (AI) investment cycle continues to influence capital allocation. South Korea attracted another $3.5 billion in foreign inflows, while Taiwan recorded a 23-week high inflow of $1.8 billion, even as India-focused long-only funds continued to face redemptions, according to Elara Securities’ latest Global Liquidity Tracker.

The divergence highlights how the global AI trade has been influencing flows across emerging markets, with investors directing capital towards markets seen as beneficiaries of the broader AI ecosystem.

South Korea, Taiwan and Foreign Capital

South Korea led the recovery in emerging-market flows, attracting $3.5 billion of foreign inflows. Taiwan also saw strong investor interest, with inflows reaching a 23-week high of $1.8 billion. Brazil and Mexico recorded improving foreign participation as their markets stabilised around their respective 200-day moving averages.

At the broader emerging-market level, GEM funds recorded a six-month high inflow of $4 billion as the EM Index rebounded from its 200-day moving average. Global industrial funds also saw inflows accelerate to a seven-week high of $1.3 billion, reflecting continued capital allocation towards the wider AI ecosystem.

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India continues to see redemptions

India, in contrast, has remained under foreign-flow pressure. India-focused long-only funds continued to witness redemptions, although the pace of selling has moderated in recent weeks. Elara said much of the pressure during 2026 reflected capital being redirected towards the AI trade, particularly in Taiwan and South Korea.

However, the flow picture for India may be beginning to improve. Since mid-June, India-focused long-only funds have outperformed emerging-market long-only funds by around 10%, marking their strongest phase of relative outperformance since February-April 2025.

This suggests that while foreign investors have not completely reversed their selling of India-focused funds, the relative performance gap has started moving in India's favour.

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Is the AI trade becoming crowded?

The sustainability of the current capital rotation remains an important question. Elara noted that a significant portion of the AI trade has become crowded over the past three months, precisely as returns have started moderating. The recent correction has not yet triggered redemptions, but the key test will be whether investors who entered during the recent phase of enthusiasm continue holding their positions if returns remain subdued.

For India, a slowdown in the AI-driven rotation could potentially ease foreign-flow pressure. The report's assessment is that the rotation towards the AI trade is already showing early signs of slowing, coinciding with an improvement in India's relative performance.

The emerging-market flow landscape therefore remains fluid. South Korea and Taiwan continue to attract substantial foreign capital, while India's outflows are moderating. Whether this develops into a broader reallocation towards India will depend on how the AI trade evolves and whether investors continue to favour its recent beneficiaries.

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