Record Outflows Hit India and Taiwan ETFs Amid Middle East Tensions

Global investors pulled significant capital out of major Asian markets in March, hitting record lows for India and Taiwan-focused ETFs. However, a sudden shift in geopolitical sentiment has sparked a massive equity rebound at the start of April, highlighting the extreme volatility currently defining Asian markets.

Massive Capital Flight from INDA and EWT

March proved to be a month of unprecedented withdrawals for US-listed exchange-traded funds (ETFs) tracking single Asian nations. According to data compiled by Bloomberg, BlackRock’s iShares MSCI India ETF (INDA), which manages $6.7 billion, saw a staggering $1.4 billion in redemptions.

Simultaneously, the iShares MSCI Taiwan ETF (EWT), valued at $7 billion, witnessed a record outflow of $1.1 billion. These massive liquidations were driven by growing anxieties regarding energy security and macroeconomic stability across the region, particularly as Middle East tensions threatened global supply chains.

India’s Macroeconomic Headwinds

The Indian equity market faced a particularly difficult period, with its benchmark index losing 11% in March. This brought year-to-date losses to over 15%, positioning India among the worst-performing markets in Asia for the period.

Several domestic and global factors converged to weigh on investor sentiment:

  • Currency Weakness: The Indian rupee hit record lows against the US dollar.
  • Rising Yields: Increasing government bond yields added pressure to equity valuations.
  • Energy Concerns: Escalating tensions in the Middle East fueled fears of a global energy crisis, which disproportionately affects India's import-dependent economy.

Due to these risks, major financial institutions including UBS Global Wealth Management and HSBC recently downgraded Indian equities to a "neutral" rating.

Taiwan’s Manufacturing and Energy Struggles

Taiwan’s benchmark equities index experienced an even sharper decline, falling nearly 13% in March—its most significant drop since September 2022. The primary concern for Taiwan lies in its heavy reliance on natural gas imports to power its massive semiconductor and manufacturing sectors.

The ongoing energy crisis has threatened the outlook for Taiwan's critical chip industry. While experts note that Taiwan maintains significant pricing power due to its dominance in the global tech supply chain, the immediate cost pressures on its export-heavy manufacturing base led to a massive exodus of capital.

A Sudden Rebound Driven by Geopolitics

Despite the record outflows, Asian stocks saw a massive rebound on the first day of April. This sudden "greed rebound" was triggered by shifting geopolitical signals, specifically comments from US President Donald Trump suggesting a desire to exit the Middle East conflict sooner.

While markets reacted sharply to these headlines, analysts suggest that such volatility is typical during times of high tension. While stock gauges in both India and Taiwan remain down significantly from pre-war levels, the sudden surge indicates that sentiment can shift overnight based on diplomatic developments.

Key Takeaways

  • Record Redemptions: BlackRock’s India (INDA) and Taiwan (EWT) ETFs saw record outflows of $1.4 billion and $1.1 billion, respectively, in March.
  • Economic Vulnerabilities: India struggled with rupee depreciation and rising yields, while Taiwan faced energy security risks impacting its semiconductor sector.
  • Volatility Shifts: Despite heavy losses in March, Asian equities saw a sudden rebound in early April driven by changing geopolitical sentiments regarding the Middle East.