Traders withdrew billions of dollars from exchange-traded funds (ETFs) investing in emerging market assets last week, ending a 20-week streak of inflows, as the conflict involving Iran persisted. Among individual markets, India experienced the largest capital outflow.
Data shows that in the week ending March 13, emerging market ETFs listed in the United States, which invest across developing countries or target single nations, saw a combined outflow of $2.35 billion. This reversal ended a cumulative inflow trend of $58.9 billion. The weekly outflow was the largest since April 2025, with strategies heavy in bonds and Asian equities leading the redemptions.
Equity ETFs recorded outflows of $1.21 billion. Bond ETFs recorded outflows of $1.14 billion. Total assets under management decreased from $483.9 billion to $476.1 billion.
By market, India saw the largest capital outflow, amounting to $674 million. South Korea attracted the largest inflow at $587 million, ranking first in inflows for the fifth consecutive week.
With no signs of easing in Middle East tensions, a risk-off mood pervaded global markets last week. Assets from developing economies faced broad pressure, with the MSCI Emerging Markets Equity Index falling 2% to its lowest level since January. Concurrently, a gauge measuring the performance of developing-nation currencies erased its gains for the year as the U.S. dollar strengthened.
"On the surface, this appears to be purely a risk-off move," said Todd Sohn, Chief ETF Strategist at Strategas. "If Federal Reserve policy is less accommodative than previously expected, demand for higher-risk bonds will diminish. Furthermore, persistently high energy prices could reignite inflationary pressures, adding further pressure."
Despite the ongoing tensions, markets began to rebound on Monday. Crude oil prices retreated on hopes that more tankers might transit the Strait of Hormuz, although shipping along this critical oil route remains nearly halted. However, volatility is expected to persist this week as traders prepare for the Federal Reserve's interest rate decision and Jerome Powell's press conference on Wednesday.
The $14.9 billion iShares J.P. Morgan USD Emerging Markets Bond ETF recorded the largest outflow, with traders pulling a record $2.3 billion last week, marking the fund's biggest weekly withdrawal since its inception in 2007. Asia-focused ETFs also saw outflows, with the iShares MSCI India ETF experiencing a withdrawal of $466 million.
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