Asian fund flows diverge in Q2 as investors pivot to multi-asset strategies

Asian investors turned increasingly selective in the second quarter of 2026, pulling back from regional equity strategies while steering fresh capital into multi-asset allocation funds and safe-haven domestic assets.

In Singapore, the fund industry lost momentum in the second quarter of 2026, with authorised unit trusts pulling in just $1 billion (S$1.28 billion) in net inflows, down 60% from the S$3.20 billion that flowed in the first quarter, according to a Morningstar report. 

Even so, cumulative inflows for the first half of the year reached S$4.48 billion, highlighting how investor appetite remains intact despite shifting allocations. Allocation funds stood out, attracting S$1.83 billion in Q2 compared to S$1.46 billion in Q1, and cementing their position as the best-selling asset class with S$3.29 billion of cumulative net inflows year-to-date.

Equity funds, which led in Q1 saw net outflows of S$93.3 million, while fixed income redemptions widened to S$288.9 million from S$97.2 million in Q1.

Equity flows revealed sharp divergences across markets. In Singapore, domestic equity funds became the most popular category for the investors, with S$1.05 billion of net inflows, followed by Asia Pacific ex-Japan Equity Income at S$265.9 million and technology sector equity at S$74.6 million.

By contrast, Asia ex-Japan equity strategies were heavily sold, with S$1.19 billion in redemptions. Thailand saw large-cap equity funds lose THB10.04 billion ($302.2 million), China equity funds shed THB3.49 billion, and property-indirect flexible funds record THB2.40 billion in redemptions. Asia Pacific ex-Japan and India equity funds also faced withdrawals, underscoring the broader retreat from China- and regionally focused strategies.

Malaysia’s equity flows were more modest but followed a similar pattern: inflows were concentrated in diversified and country-focused funds, while technology and Greater China exposures saw heavy selling.

“Malaysian investors continued to shy away from China and technology exposures,” the report noted, with equity-technology funds losing MYR1.34 billion ($328.7 million) and Greater China equity down by MYR1.17 billion.

China itself stood out for polarised trends, with Greater China equity funds suffering CNY954.8 billion ($142.5 billion) in outflows even as US-linked exposures drew modest inflows.

FIXED INCOME FLOWS

For US fixed income funds, demand was broad-based across nearly every duration and quality segment, as investors positioned for an easing rate environment alongside the equity rally.

China saw a dramatic surge in subscriptions, led by Asia fixed income funds, which gathered CNY1.09 trillion in Q2.

Thailand’s inflows were concentrated in short-duration strategies, with short-term bond funds attracting THB97.65 billion, while longer-duration and foreign-linked categories faced steep redemptions.

Malaysia’s fixed income flows were muted but skewed positive, led by Shariah-compliant domestic bonds.

In Singapore, Asia fixed income was the most popular category, drawing S$208.99 million, while miscellaneous money market funds attracted S$236.81 million. Asia money market funds, however, saw net outflows of S$454.59 million.

OUTLOOK

The geopolitical backdrop weighed heavily. Oil prices spiked and global equities tumbled when the Iran war began in late February, but a fragile ceasefire helped markets rebound in Q2, the report noted.

The Morningstar Global Markets ex-US Index rose nearly 13% year-to-date, reversing March’s 10% decline. Asian equities surged 32% in Q2, powered by exceptional gains in technology.

“Asian tech companies have gained almost 93% in the second quarter,” the report said.

Yet sectoral divergences persisted: consumer defensive stocks weakened on war-related input cost risks, while healthcare pulled back after strong gains in 2025.

In China and Hong Kong, valuations shifted sharply, with 78% of covered stocks now rated 4 or 5 stars, up from 62% in Q1, as declines in e-commerce, travel and healthcare boosted relative attractiveness.

Japan’s gains were also led by technology, though returns were more broad-based. “(Japan’s) technology sector’s strong rebound from the pullback in the March quarter has moved it from a 14% discount to our intrinsic value to being overvalued by 24%. We would prefer to see around a 20%-30% correction in technology share prices before we consider buying,” the report said.

Overall, the quarter underscored investors’ preference for diversified allocation strategies and selective equity exposures, while fixed income demand broadened in anticipation of easing rates.