Foreign funds posted a net US$389.4 million inflow into Asian stocks last week

Foreign investors added risk across Asia for a second consecutive week, and the pattern looks less like a chase for beta and more like a measured reallocation toward markets with policy clarity and near-term trade catalysts. A US$389.4 million net inflow was not large by regional standards, but the composition matters: Korea drew the most capital, Indonesia extended gains, and Taiwan kept its methodical streak alive. India and Thailand bled funds, and Malaysia’s tape showed foreign selling for a sixth straight week despite a softer pace. In short, capital is following announced alliances and executable industrial policy, not headline growth alone.

Korea’s US$587.5 million inflow is the cleanest read on geopolitically linked positioning. With President Lee Jae Myung scheduled to meet US President Donald Trump in Washington on August 25, investors are marking to a scenario where tariff de-escalation and coordinated industrial policy lower earnings volatility for Korea’s core export pillars. The prior tariff deal serves as the policy scaffolding: semiconductors and batteries get supply-chain preference; shipbuilding and critical minerals gain visibility on market access; technology standards look less exposed to sudden rule changes. This is not simply sentiment. It narrows distribution tails for cash flows in sectors where Korea is a price-taker in global cycles, and that shows up as higher foreign demand for index heavyweights.

Indonesia’s US$412.3 million second-week inflow underscores how trade instruments can be more investable than macro narratives. The newly signed free trade agreement with Peru is small in absolute GDP coverage, but it signals momentum in Jakarta’s diversification of export destinations—useful insurance as commodity prices chop and as nickel downstreaming seeks stable end-markets. For capital allocators, the test is execution: whether tariff preferences and rules-of-origin translate into shipment growth and margin uplift in 2026 budgeting cycles. For now, the repeat buying suggests investors are comfortable underwriting the policy trajectory while they wait for operating data.

Taiwan’s US$90.4 million net inflow extends an eight-week streak, the longest since data began in 2021. That cadence matters more than the weekly quantum. Persistent foreign accumulation indicates that the market’s AI-linked earnings path, backed by resilient foundry capex and export orders, remains credible even as valuations have already re-rated. For sovereign and pension allocators, the eight-week run is a green light to keep neutral-to-overweight exposure without timing risk; it signals that liquidity depth and policy predictability continue to anchor cross-border bids.

India is the outlier: a US$347.8 million foreign outflow week extends a five-week losing run, even as S&P Global Ratings upgraded the sovereign to BBB from BBB-, the first uplift in 18 years. The apparent contradiction is less about macro doubt than about allocation math. Global managers have been overweight India on growth, reform credibility, and domestic flows for multiple years. A rating upgrade recasts long-duration bond demand and lowers the ceiling on risk premia, but for equities it can be a sell-the-news event if positioning is crowded and micro earnings revisions have cooled. It also hints that allocators are funding North Asia and ASEAN exposures from prior India gains, rather than increasing regional risk budgets outright. That is capital rotation, not a thesis reversal.

Malaysia’s sixth straight week of foreign equity outflows, at RM566.1 million, is notable for its texture rather than the headline size. Utilities, telecommunications and media, and healthcare bore the brunt of selling, while plantations, property, and financial services attracted foreign inflows. This looks like a domestic value-and-carry rotation shaped by two impulses: first, trimming defensive names where yields no longer fully compensate for regulatory and tariff uncertainty; second, selectively adding to sectors with clearer cash-flow visibility or commodity tailwinds. The day-by-day bleed—net selling every session, with the largest outflow on Friday—suggests programmatic de-risking rather than a single macro shock. For policymakers, the message is straightforward: where regulatory cadence is predictable and project pipelines are transparent, foreign selling slows or even reverses.

The broader through-line across the week is that investors rewarded markets with tangible, near-term policy anchors. Korea’s summit-linked industrial agenda is investable because it translates into expected treatment in critical supply chains. Indonesia’s trade diplomacy is investable because tariff schedules and rules-of-origin can be modeled into company P&Ls. Taiwan’s steady foreign buying is investable because the earnings runway is underwritten by structural demand and capex already in train. By contrast, India’s rating upgrade, while unquestionably positive for sovereign funding costs and benchmark inclusion dynamics, arrived against an equity market that had already harvested much of the multiple expansion implied by reform credibility. Malaysia’s sector split reflects that global money is still present, but choosier.

Two risks sit in the background. First, alliance-driven industrial policy can anchor flows, but it also creates dependency on political calendars; if summit outcomes slip or tariff relief is narrower than assumed, the Korea trade would compress quickly at the margin. Second, trade wins of modest absolute scale can over-encourage narrative risk; Jakarta’s deal flow needs to be matched by customs clearance speed, logistics throughput, and investor protections to convert memoranda into shipping manifests. Neither risk negates the week’s pattern; both qualify its durability.

What this week’s Asian equity fund flows 15 Aug 2025 ultimately signal is a capital posture that is pragmatic and policy-sensitive. Allocators are not boosting regional beta in aggregate; they are rotating into markets where political agreements and trade frameworks reduce earnings dispersion, and away from crowded longs and regulated defensives where risk-adjusted carry has faded. That posture may look cautious, but it is coherent. The divergence from earlier, liquidity-led rallies is narrowing. Markets will watch for the Washington summit to translate signaling into rules. Sovereign allocators already have.