Historic Rout in Emerging Markets Sows Seeds of Outperformance
- Selloff brutal in absolute terms, less so when compared to US
- Relative stock valuations jump; China growth outlook watched
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The first half of 2022 brought a brutal selloff to emerging markets, but also fueled hope for the second half: stocks, bonds and currencies have begun to outperform their peers in the US.
The pain, of course, spread everywhere. Dollar bonds posted the worst first-half performance since at least 1994, local-currency debt had the biggest losses on record and stocks tumbled the most since 1998. Sovereign-risk premium surged more in the past six months than in any full year since the financial crisis. All this led to the biggest capital flight out of emerging markets since the Covid panic of 2020.