Emerging Markets Witness Sharp Decline in Foreign Portfolio Inflows Amid China Concerns

In September 2025, foreign portfolio inflows into emerging markets (EMs) declined to just over $26 billion, marking the lowest level since May, according to the Institute of International Finance (IIF). This represents a significant drop from $47.1 billion in August and $63.5 billion in September 2024.

The downturn was primarily driven by substantial outflows from Chinese equities—the largest since November—and the first net outflow from Chinese debt since January. In contrast, EM debt excluding China attracted $35.1 billion, the highest since February.

"Investors have grown more selective amid tight valuations and China’s renewed weakness," the IIF noted in its report.

Emerging Asia saw $14 billion in inflows, followed by Latin America with $8.2 billion, Africa and the Middle East with $2.6 billion, and Eastern Europe with $1.4 billion.

Sovereign debt issuance surged to $50 billion in September, led by Mexico, putting the year on track to surpass the 2020 issuance record. However, lower-rated issuers continue to face challenges in accessing the market.

The decline in portfolio inflows into EMs, particularly the outflows from Chinese equities and debt, reflects growing investor concerns over China's economic slowdown. This trend may lead to reduced capital availability for EMs, potentially impacting economic growth and development in these regions.

The variations in portfolio inflows across different EM regions highlight the need for EMs to strengthen their economic fundamentals and address structural issues to attract and retain foreign investment.

The significant drop in EM portfolio inflows in September 2025 underscores the cautious approach investors are adopting amid economic uncertainties, particularly concerning China's economic health. As geopolitical risks and fragile global conditions persist, EMs must navigate these challenges to maintain and attract foreign investment.