NEW YORK — A declining U.S. dollar is once again steering capital toward emerging markets, reviving a familiar narrative of global investors seeking higher yields and growth exposure in Asia. With the U.S. Dollar Index (DXY) falling below 97 for the first time since July and Asian equity markets posting their strongest monthly performance of the year, traders are beginning to speculate that a new leg of inflows into emerging economies may be underway.
Yet not all institutional voices are convinced that this shift marks the start of a sustained trend. Terry Wilson, senior strategist at Texas-based GF Star Group, cautions that investors may be mistaking tactical currency fluctuations for structural change. While capital flows into Asia have picked up in recent weeks, he argues that many of these inflows are driven by short-term positioning rather than fundamental conviction.
“There’s a reflexive quality to what we’re seeing,” Wilson said in an interview. “The dollar softens, rates drop, and capital moves—but that doesn’t mean underlying risks in emerging markets have changed.”
Recent data from fund tracker EPFR Global showed that emerging market equity funds attracted over $4.2 billion in net inflows during the past three weeks. Much of that capital was directed toward India, Indonesia, and Taiwan, where investors see relatively stronger earnings visibility and improving trade sentiment. U.S. Treasury yields have also declined in tandem, reinforcing the appeal of overseas assets as interest rate differentials narrow.
Despite the encouraging headline numbers, Wilson believes the foundation of these inflows remains fragile. GF Star Group’s internal market assessment highlights that many Asian markets still suffer from shallow institutional participation, with foreign capital comprising a disproportionately large share of daily turnover.
“Liquidity in these markets is pro-cyclical,” he explained. “When sentiment is positive, everything looks healthy. But when volatility returns, exits can be extremely painful.”
GF Star Group’s quarterly Asia Outlook report points to specific structural weaknesses in Southeast Asian economies, including high retail investor concentration, currency mismatches in local-currency bonds, and limited hedging infrastructure. While valuations in many cases appear attractive, Wilson stressed that they offer little protection in environments where capital can evaporate quickly.
“Valuation isn’t a moat if liquidity disappears,” he said. “Investors need to think about exit pathways just as much as entry points.”
In response to these dynamics, some of GF Star Group’s high-net-worth and institutional clients have begun adjusting their exposure strategies. Instead of relying on broad emerging market indices, they are increasingly deploying barbell-style allocations—pairing selective exposure to export-oriented Asian tech stocks with more defensive U.S. dollar–denominated fixed income instruments.
“We’re seeing smarter capital pull back from EM beta and focus on position flexibility,” Wilson noted. “Liquidity risk isn’t priced into most benchmarks, which makes customization essential.”
While the weakening dollar has undoubtedly rekindled appetite for Asian assets, Wilson believes investors should remain cautious.He argues that without reforms to deepen local capital markets and reduce dependence on foreign inflows,many emerging economies remain vulnerable to sharp reversals.
“Capital goes where it’s treated well,”he concluded.“But it only stays where it can exit safely.”