De-risking shifts global investment landscape as funds exit China

A significant transformation in the global investment landscape is underway as funds rapidly flow out of China to countries like Japan, India and Taiwan, to reduce their dependency on the Chinese economy.

This trend, known as de-risking, gained momentum in the second quarter of this year and signals the beginning of major changes in the global investment landscape following the reshaping of the global supply chains led by the U.S.

According to Bloomberg, WIND, Samsung Securities, and other sources, foreign capital outflow from China amounted to over $400 million in the second quarter, while Japan and India experienced record levels of funds influx into their respective markets.

The exodus of foreign funds from China is unprecedented. Despite significant foreign capital outflows from major Asian countries such as Japan, South Korea and Taiwan during the past three years amid the Covid-19 pandemic, China’s stock market received an inflow of $110.8 billion. In the first quarter of this year alone, China’s stock market attracted $27.3 billion. However, during the second quarter, which saw intensified discussions on de-risking and a domestic economic slowdown, overseas capital swiftly departed from China.

Taiwan, a critical hub in the semiconductor supply chain, witnessed a greater influx of foreign capital of $3.2 billion compared with South Korea‘s $2.4 billion. Foreign investors focused their buying activities on key semiconductor companies such as TSMC in Taiwan and Samsung Electronics in South Korea.

Japan, India and Taiwan, where global funds have converged, recorded substantial gains in the second quarter. Japan’s stock market, which experienced a surge of over 20 percent, outperforming the U.S. Nasdaq and reaching its highest level in 33 years, delivered the best performance among major global markets. India’s Sensex index also broke records, soaring nearly 10 percent in the second quarter alone.

In contrast, as money flows out, China’s stock market has struggled to keep pace. The Shanghai Composite Index experienced a decline of 2.2 percent during the same period. Despite expectations of a reopening economy, China’s stock market moved in the opposite direction compared to the flourishing markets of other major economies.