According to data from the International Institute of Finance (IIF), foreign investors withdrew $70.3 billion from emerging market assets in March following the outbreak of hostilities involving Iran in the Middle East. This marks the largest capital outflow since the market collapse triggered by the pandemic in March 2020 and reverses the inflow trend observed in January and February.

IIF data shows that emerging market equities, particularly those in Asia, experienced outflows of $56 billion, the largest withdrawal in at least two decades and the primary driver behind the overall capital flight. The fixed income market recorded outflows of $14.2 billion, although the Chinese market saw an inflow of $2.5 billion, slightly higher than in February.

The IIF noted that in the face of significant geopolitical shocks, equity allocations can change rapidly when markets fear such events may threaten growth, profit margins, and global risk appetite. Jonathan Fortun, a senior economist at the IIF, stated that the data highlights the vulnerability of emerging markets to high oil prices and the repositioning of technology-related equity holdings. He described March's activity not as a broad-based stagnation across all emerging market assets, but rather as a "concentrated risk-off event," adding that the figures do not indicate widespread financing stress in emerging markets.

Fortun suggested that if the Iran conflict proves short-lived, March could represent the peak of asset selling. Otherwise, outflows may intensify. He also pointed out that rising inflation, delayed global monetary easing, a stronger U.S. dollar, and reduced policy flexibility in emerging markets are factors making it difficult for capital flows to stabilize quickly.