Mass foreign capital exodus! Asian stock markets may face their largest outflow since 2009.

The Middle East conflict has triggered a sharp surge in oil prices, and Asian emerging markets are undergoing a historically significant withdrawal of foreign capital. International investors are continuously selling off Asian equities—particularly those of countries highly dependent on energy imports—pushing the scale of capital outflows toward the highest level in 15 years. According to Bloomberg’s compiled data, since the outbreak of the Iran war, foreign investors have collectively sold approximately $52 billion worth of Asian (excluding China) emerging-market equities. This has placed the region on track to record its largest single-month foreign capital outflow since 2009. Markets heavily reliant on crude oil imports—such as South Korea and India—have borne the brunt of the sell-off. Last week, Morgan Stanley strategists advised investors to reduce exposure to Asian equities during any rebound, citing persistent risks of oil supply disruptions in the region. Meanwhile, a strengthening U.S. dollar and profit-taking in semiconductor stocks have further amplified declines across Asian markets. In contrast, U.S. equities have held up relatively well—benefiting from America’s status as a net energy exporter—resulting in a pronounced divergence between U.S. and Chinese stock market performance. The prospects for a U.S.-Iran ceasefire remain uncertain. While Washington insists negotiations are ongoing, Iran has publicly rejected President Trump’s overtures. The timing of foreign capital’s return to Asian markets remains highly unpredictable. Outflows Hit a 15-Year High This month’s capital flight has already surpassed multiple historical benchmarks, underscoring the severity of the shock. Per Bloomberg data, this month’s foreign outflow from Asian emerging markets has exceeded even the levels seen in March 2020—the early phase of the COVID-19 pandemic—and more than doubled the outflow recorded during the Russia-Ukraine shock in June 2022. Soaring oil prices cast a shadow over the economic outlook for net energy-importing nations—most of which are concentrated in Asia.

From the shattering of the 'Goldilocks' dream to the restructuring of asset allocation.

With the conflict in Iran appearing to intensify, markets seem to be pricing in a less favorable outcome—even amid what had been a 'Goldilocks' backdrop: robust earnings growth, expanding margins and productivity, substantial capital expenditure, a dovish Federal Reserve, and a well-behaved bond market. That 1970s term—'stagflation'—is now creeping back into headlines. For now, equity markets appear to be pricing in a relatively swift conflict, akin to the 1990 Gulf War—but who can say for sure? Fortunately, the AI bubble many anticipated just a few months ago has not materialized, leaving markets less overextended than they might otherwise have been. Still, convergence trades—between U.S. and non-U.S. equities, and between the 'Magnificent Seven' and the broader market—may have become somewhat crowded. As a result, it may take some time before recent leadership resumes. Once the dust settles, however, I expect these themes to re-emerge.

EM Stocks Tumble Most in More Than a Month as Oil Jumps

May 14, 2026

Emerging market stocks fell sharply with the MSCI EM Index dropping 2.2%, driven by rising Brent crude prices amid unresolved tensions in the Strait of Hormuz and Middle East conflict concerns.

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