After soaring in 2017, emerging market stocks suffered a brutal sell-off this year. A slew of problems — trade tensions, rising interest rates in the U.S., a strong dollar, China's economic slowdown and crises in Argentina and Turkey — impacted these markets.
However, it appears that some investors are now scooping up these beaten down stocks as the longer-term outlook for many developing countries remains positive.
The latest monthly survey from Bank of America Merrill Lynch shows that investors increased their allocation to emerging-market stocks to 13 percent in November from 5 percent in October, while reducing their exposure to earlier high-flying technology stocks.
The gridlock in Washington D.C. could help emergin market stocks. More tax cuts seem less likely now as Democrats will focus on reducing the budget deficit. That could ease inflationary pressures and the Fed may not have to be aggressive in raising rates to prevent the economy from overheating.
Slide in oil prices benefits most countries in Asia that are net oil importers. That's why many developing countries' currencies — including the Indian rupee and Indonesian Rupiah — have rebounded with the recent plunge in oil prices.
Some optimism on the trade front also helped emerging market stocks. Reuters reported recently that China has submitted a written response to US demands for trade reforms, and both sides could resume negotiations. Further, FT reported that next round of tariffs on Chinese imports has been put on hold by Trump administration for the time being.
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