Some of the money is being diverted into markets directly benefiting from China's economic pain, such as Mexico, India, Vietnam and other locations that are replacing it across global manufacturing supply chains. Other investors are simply moving to markets with better growth prospects, such as Brazil.

"China’s export dominance is ebbing, creating opportunities for other emerging market countries to fill the gap, including Mexico, India, and Southeast Asian nations," said Malcolm Dorson, a New York-based senior portfolio manager at ETF manager Global X.

The scale of change needed in global supply chains could drive such capital flows for the next decade, he said.

Refinitiv data shows China-focused mutual funds suffered a net outflow of $674 million in the second quarter of this year, while, in contrast, nearly $1 billion went into EM ex-China mutual funds.

The iShares MSCI Emerging Markets ex-China ETF, the world's largest emerging market ex-China ETF whose biggest holdings are firms in Taiwan, South Korea and India, attracted a record $1 billion net inflow in the first half of 2023, the data showed.

Eoin Treacy's view

Investors like to have the currency, yield and market on their side. The Dollar has been steady to rising for much of the last decade so that has acted as a tailwind for investments in the USA and helped to fuel the rise of the mega-cap group of companies. The potential for the Dollar to roll over changes the calculus and raises the question of which are the best ex-US markets to invest in?

China is cheap but is risky from a standards of governance perspective. The simple fact is that it is easy to buy, but selling is difficult amid political and regulatory volatility. The trend of improvement is several other markets, seeking to play the major powers against one another, is a safer bet.

Mexico, Brazil, Vietnam, India, South Korea and Taiwan are all well placed but require the US Dollar to trend lower to significantly ignite demand. The Dollar Index jumped today on stronger GDP and lower inflation data. That boosted the belief we are in for a soft US economic landing. That is likely to sap some of the demand for ex-US markets in the short term, so mean reversion is looking more likely.