(Reuters) -Foreign investors flocked to Asian stocks for the third straight month in July, with inflows into Taiwan hitting a near two-decade high and Thailand snapping its nine-month losing streak, buoyed by growth and AI prospects as trade worries fluctuate.

Foreign inflows into most Asian equity markets have stabilised over the past three months as countries clinched better trade arrangements with the United States, calming tariff-related volatility and uncertainty in financial markets.

Overseas investors showed strong interest in Taiwan and South Korea for the third straight month in July, pouring $7.78 billion in Taiwan, the highest since the 2008 global financial crisis, and $4.52 billion in South Korea, the most since February last year, LSEG data showed.

The MSCI gauge of equities in Asia excluding Japan rose 2% last month, its fifth consecutive month in green, while benchmarks in Taipei and Seoul advanced roughly 6% each.

Taiwan and South Korea were the top destinations in the region for foreign capital, securing a cumulative $25.7 billion over the past three months as the two dominant Asian tech exporters benefit from a global surge in AI-related investments.

South Korea's shareholder-friendly reforms, political stability, and robust corporate fundamentals lured investors in 2025 after a dreary performance last year, though recent concerns over reforms to tax policy are posing new challenges.

Foreign investors also net bought $499 million worth of Thai equities in July, the first month of inflows since September last year, as they scooped up stocks at relatively cheap valuations after a prolonged period of heavy selling.

Even so, Thailand's uncertain political climate, challenging macroeconomic conditions, and an unnecessarily strong currency that undermines export competitiveness continue to impede any buildup of positions on these equities.

Thailand's benchmark SET index surged 14% in July - its best month since November 2020 - but still not enough to erase steep losses suffered earlier in the year. The index remains 10% in the red, ranking among the region's worst performers.

"We are cautious and underweight on Thailand as it remains in a fairly precarious position: high household debt, limited government spending, an uncertain political environment, and external negative events such as the conflict with Cambodia," said Kenneth Tang, senior portfolio manager at Nikko Asset Management.

"If Thailand can settle these issues, it will clear up the path for its recovery."

Indian stocks experienced sharp outflows of over $2 billion in July, the highest since February this year and snapping a three-month streak of net purchases. 

Indonesia and the Philippines also logged net outflows of $570 million and $29 million, respectively, last month, while Vietnam attracted $326 million as investors bet on the country's strong growth prospects after it secured a comfortable tariff rate with the United States.