Asian Capital Favors Japan, South Korea as India, Indonesia and Philippines Struggle for Inflows
Updated
Updated · Financial Times · Jul 13
Asian Capital Favors Japan, South Korea as India, Indonesia and Philippines Struggle for Inflows
3 articles · Updated · Financial Times · Jul 13
Summary
Asian investors are channeling more surplus capital into Japan and South Korea, while India, Indonesia and the Philippines are losing out in a more selective regional funding environment.
Elevated developed-market yields and AI-driven equity and debt issuance have tightened global liquidity, pushing investors toward export-heavy markets with competitive currencies, stronger governance and clearer market-friendly policies.
Japan’s yen near 162 per dollar and South Korea’s weaker won have boosted exporters, tourism and foreign earnings, helping both markets attract capital despite weak demographics and reliance on external demand.
India has cut swap costs, reduced tax on foreign investment in government bonds and signed trade deals, while Indonesia has raised rates and the Philippines liberalized renewables, but policy concerns and geopolitical risk still deter investors.
The shift underscores that Asia’s capital surplus is not automatically flowing to faster-growing emerging markets; those economies still need higher yields, cheaper valuations or deeper reforms to win sustained inflows.
As capital floods into two 'safe' nations, are investors ignoring massive opportunities in the rest of emerging Asia?
Is the global rush into Japan and South Korea creating the next big investment bubble for the world economy?
Can South Korea’s AI-driven economic boom survive its looming demographic collapse?
Asia’s Capital Flows in 2025-2026: Divergence, Risks, and the Battle for Investment Amid Global Headwinds
Overview
In 2025 and early 2026, Asia’s capital flows showed sharp divergence as foreign investors pulled a record $137 billion from Asian stocks, driven by rising debt costs and surging global oil prices. Asia’s heavy reliance on oil shipments made the region especially vulnerable, leading to higher import bills and a stronger US dollar. This caused several Asian currencies, including the Indian rupee, Japanese yen, and Korean won, to weaken. Despite these challenges, some economies and sectors—like tech exporters and manufacturing hubs—remained resilient, attracting investment and highlighting the region’s adaptability amid global headwinds.