UBS Equities-Global Strategy _How quickly are global flows rotating to EM...-117854104

ab22 September 2025Global ResearchGlobal StrategyHow quickly are global flows rotating to EM?Assessing the pace of rotation through 5 indicatorsIn this note we examine the pace at which global flows are rotating into EM. We focus on 5 indicators: (1) High frequency flows into EM debt & equity; 2) US TIC data; (3) UBS Quant team's equity crowding data; (4) resident EM outflows into foreign portfolio securities; and (5) changes in EM FX deposits. We make 5 conclusions.1. US flows into EM equities gathering pace. North Asia & Brazil favouredThe rotation into EM equities is gathering pace. TIC data, released on Thursday, shows US flows into EM equities hitting $38bn in the 3m to July; their strongest spell on record. Brazil, Hong Kong and Taiwan equities saw the strongest inflows relative to the same period in 2024 (as did Japan in DM). Higher frequency data from EM exchanges show Korea & Taiwan tracking record monthly foreign flows in Sept thus far. However, flows into EM outside of North Asia and Brazil appear much more muted. India, ASEAN, and Mexico equities for example are still seeing net foreign outflows this year; UBS' Quant crowding scores also show below-average positioning in most of these markets. While not our central scenario, in a potential global equity bubble positions in these markets has scope to pick up. UBS is OW on China, Brazil and selected ASEAN equity markets (MY/PH/ID).2. Record China northbound turnover. Retail flows not overheated yetChinese equities are witnessing record daily northbound and southbound turnover this month (former running at 1.6x Oct 2024 levels), indicative of rising local and foreign flows. Retail flows, however, appears far from overheated. Margin financing is still ½ of its 2015 peak as a share of mkt cap. The stock of household deposits at banks is ~59trn RMB higher than A-share mkt cap (10y avg: 30trn RMB). With valuations still undemanding, we remain OW MSCI China in an EM context. 3. EM's local investor outflows have been more persistent….Over the past decade EM net portfolio flows have been dominated by local, not foreign, investors. The pace of resident outflows is thus key for EM FX investors to track. BoP data for the main monthly reporters - Korea, Brazil, Chile & Poland - betrays no evidence at all of local repatriation thus far, even as the dollar has weakened. Indeed Korean daily retail FX outflows have surged back towards the highs seen earlier this year (despite the strong recovery in KOSPI); we are tactically short KRW vs. JPY. There have, however, been clearer signs of repatriation in Taiwan and, to a lesser extent, Israel (data to June) – we remain short USD/TWD and USD/ILS into YE. FX deposits have also been sticky so far e.g. China +$60bn in May-Aug (to $1trn) / Thai FX deposits +$8bn yoy, though this data doesn't yet capture the Fed's renewed easing cycle. 4. ….which may hold EM FX back over the medium termIn our view, the scant evidence of portfolio flow repatriation back