July 1 (Reuters) - Foreign investors sold Asian equities at the fastest pace in at least 16 years in the first half of 2026, as a blistering AI-driven rally forced them to trim their biggest winners in South Korea and Taiwan and hunt for laggards at a discount.
Overseas investors pulled a net $137.36 billion from shares across South Korea, Taiwan, India, Indonesia, Thailand, Vietnam and the Philippines in the first six months of the year, the fastest six-month outflow in LSEG data going back to 2010.
South Korea and Taiwan bore the brunt, shedding $70.8 billion and $29.6 billion respectively.
The exodus reflects investors grappling with the stunning rally in South Korean and Taiwanese markets as the KOSPI (.KS11), nearly doubled in the first half of the year while Taiwan stocks (.TWII), are up 62%.
But with the rally being driven by three major chipmakers, TSMC (2330.TW), Samsung (005930.KS), and SK Hynix (000660.KS), it has spurred investors to cut their exposure to these winners amid their growing influence in indexes and to look for cheaper, under-the-radar markets in the region.
"Markets in Asia, there's only two markets and one sector that’s outperforming, so at the end of the day, you have to get your balance right,” said Joshua Crabb, head of Asia-Pacific equities at Robeco.
Analysts said the withdrawals were not a straightforward risk-off move, rather they pointed to currency hedging and benchmark rebalancing, where funds sell outperforming stocks to stave off concentration risks in their portfolios.
In June alone, foreign investors sold $27.08 billion of regional equities, including $12.63 billion from South Korea, $8 billion from Taiwan and $5.91 billion from India.
Bank of New York Mellon analysis showed mutual funds sold $7.50 billion of South Korean equities, pension funds sold $4.35 billion, while hedge funds accounted for a further $1.87 billion.
The selling by long-only funds points to rebalancing and profit-taking, not a broad rejection of South Korea, BNY said.
The shift comes as investors question whether the strongest phase of the AI-led rally has passed. While demand for AI infrastructure remains strong, markets have become more cautious after sharp gains in semiconductor and memory stocks.
The concentration risk is also forcing investors beyond the obvious AI winners, prompting fund managers to look down the supply chain and find better value in other parts of the region.
Crabb said Southeast Asia remained “very, very cheap” and had long-term structural tailwinds, though the near-term case for a strong overweight was less clear.
Kerry Craig, global market strategist at J.P. Morgan Asset Management, said investors were reassessing whether they had too much technology exposure while also looking at themes such as defence, renewables and broader diversification.
Still, analysts cautioned that record outflows do not mean foreigners will return to regional laggards as much of the money may have been hedged, repatriated or redeployed outside Asia, although a valuation reset could lure them back.
Reporting by Gaurav Dogra; additional reporting by Tom Westbrook and Patturaja Murugaboopathy ;
