Money rushes into emerging markets at record levels despite firm dollar

Global liquidity conditions are turning increasingly euphoric, with emerging market (GEM) fund inflows surging to fresh records for the third consecutive week, even as the US dollar remains resilient. According to the latest Global Liquidity Tracker, GEM funds recorded net inflows of $11 billion this week, following $8 billion and $6.6 billion in the previous two weeks, underscoring intense crowding into the de-dollarisation trade.

Notably, this sharp rise in emerging market allocations has occurred without a decisive breakdown in the US Dollar Index (DXY). Since May 2025, when the current leg of GEM inflows began, the DXY has largely remained range-bound between 96 and 100. With emerging market equities trading near long-term resistance levels, the sustainability of the rally will depend on whether these flows can drive a meaningful breakout.

Investor behaviour across emerging markets remains uneven. In China, domestic mutual funds have seen record redemptions of nearly $100 billion over the past two weeks, outweighing cumulative inflows since September 2025. Taiwan has shown a similar trend, with domestic outflows persisting for six weeks despite continued foreign inflows driven by GEM strategies.

India-focused funds, meanwhile, have faced sustained redemptions for a third straight week, with $340 million withdrawn this week. However, India’s overall flow picture has improved as allocations via GEM funds surged, pushing total inflows to a record $1.4 billion. These inflows remain largely large-cap focused, reflecting top-down exposure rather than stock-specific conviction.

The rotation into commodities has also broadened. Commodity-equity funds recorded record inflows of $9.9 billion this week, with energy-focused funds seeing their strongest inflows since March 2022 at $2.3 billion. While gold inflows accelerated to a new high of $9 billion, silver continued to see outflows.

Also read: Gold, silver slide sharply in India after record rally; MCX prices fall up to 5%

Markets are now closely watching the DXY level of 96. A decisive break below this support could confirm a structural shift, potentially unlocking the next leg of the commodity and emerging market upcycle.