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Global liquidity is gradually returning to EMs as concerns over tariff hikes begin to subside. Following Trump’s victory in Nov’24, there was a significant outflow of capital from EMs into the U.S. However, over the past three weeks, we’ve started to observe signs of a reversal. The strongest recovery in foreign inflows has been into India, Brazil, Hong Kong, and Taiwan, while South Korea is yet to see a similar rebound. In India, of the $7.7bn that exited (across allocation & dedicated funds) after the U.S. election, $960mn—or 12%—has returned in 3 weeks. Taiwan has seen a similar trend, with 10% of earlier redemptions reversing.

Crucially, foreign flows into U.S. funds remain strong and uninterrupted, averaging $6bn per week. The recent shift back toward EMs appears to be fuelled by new incremental liquidity, rather than a pullback from the U.S. Notably, domestic U.S. funds are under redemption pressure for the past six weeks.

India recorded its highest weekly inflow since July’24, at $724 mn. This was largely driven by $487mn going into Indiadedicated funds—the biggest in 7-months. All inflows were concentrated in large-cap funds. Over past 6-weeks, Indiadedicated funds attracted $1bn, split between $575mn into ETFs & $440mn into long-only large-cap funds. Luxembourgdomiciled funds accounted for 40% of these flows, followed by 35% from Ireland and 20% from the U.S. Meanwhile, Japanfocused funds have seen consistent outflows since Nov’24.

In other asset classes, junk bonds saw inflows of $3.6bn this week after 5-weeks of heavy redemptions totaling $31bn. On the other hand, gold funds saw outflows of $2.6bn following 15 straight weeks of inflows totaling $34bn. These movements may hint at an early easing in risk-off sentiment, though broader trends will be crucial to understand global risk appetite.

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