Taiwan, Korea lose $29 billion as AI worries drive rotation

Foreign investors pulled $25.48 billion from Asian equities in July, but the headline outflow masks a rotation away from the region's AI-heavy markets toward India and Southeast Asia.

Foreign investors sold a net $25.48 billion of Asian equities in July, extending a nine-month selling streak as capital rotated away from AI-heavy Taiwan and South Korea.

"The unusually high swings in AI-related sectors are making global investors diversify, and on that measure we think India looks better placed," said Herald van der Linde, head of equity strategy for Asia Pacific at HSBC.

Taiwan accounted for $22.95 billion of the outflows, following roughly $8 billion in June, while South Korea saw another $6.26 billion leave, marking a third consecutive month of foreign selling. India attracted $2.12 billion, Thailand $1.46 billion, Indonesia $88 million and the Philippines $69 million, partly offsetting the withdrawals.

The rotation reflects growing questions about the sustainability of AI infrastructure spending. Alphabet reported negative free cash flow of $5.9 billion in the second quarter after spending $44.9 billion on capital expenditure, while Tesla posted negative free cash flow of $1.09 billion.

AI heavyweights bear the brunt

South Korea's KOSPI fell 22 percent in July after more than doubling earlier in the year, with selling concentrated in Samsung Electronics and SK Hynix. Taiwan's TAIEX suffered its biggest single-day point decline on record during the month as foreign institutions accelerated withdrawals from a market heavily exposed to the global chip supply chain.

BNP Paribas analysts said AI heavyweights in South Korea and Taiwan faced massive selloffs as investors questioned chip-demand forecasts and debt-repayment ability. China's Moonshot announcement about its low-cost AI models added to the selling pressure, they noted in a July note.

The fundamental concern was not that AI demand disappeared. Instead, investors started questioning the amount of capital required to sustain it. Alphabet's cloud business remained exceptionally strong, with revenue jumping 82 percent, highlighting the tension between booming demand and the cost of supplying it.

India, Thailand draw selective inflows

India received $2.12 billion of foreign equity investment in July, while Thailand attracted $1.46 billion. Jefferies points to Indian credit growth of roughly 17 to 18 percent, led by corporate lending near 20 percent, alongside measures designed to attract foreign capital and stabilize the rupee.

HSBC recently raised India to neutral within its regional allocation, partly because the market offers a broader mix of financial, consumer and domestic-demand businesses rather than relying as heavily on semiconductors.

But one month does not constitute a wholesale return. Foreign investors remained net sellers of Indian equities by $25.86 billion for 2026 through July despite the latest inflow.

July's flows look more like rotation than a verdict on Asia. Taiwan and South Korea remain central to global AI supply chains, and the underlying demand picture has not collapsed. Alphabet's cloud revenue jumped 82 percent in the second quarter, showing that spending is generating substantial revenue even as infrastructure costs pressure cash flow. Goldman Sachs has argued that the recent Korean selloff went too far, citing continued AI demand and tight memory supply. The risk for investors is less about AI disappearing and more about concentration — when a small group of chipmakers carries an outsized share of a market's gains, any reassessment of spending, margins or competition can produce unusually violent capital flows.

This article is for informational purposes only and does not constitute investment advice.