Investors are getting ready to revisit emerging markets

Emerging market equities have fallen for most of 2022. But an improving regulatory outlook in China and Russia’s removal from major benchmark indices are reattracting investor attention, suggesting that any early optimism may have been delayed, not derailed.

The MSCI Emerging Markets Index has followed global stocks lower this year, losing nearly a fifth of its value year to date YTD. After underperforming against world indices in three of the previous four years, emerging market EM equities were positioned for a recovery at the start of 2022. At the time, hope stemmed from distressed market valuations and rising Covid-19 vaccine inoculation rates.

But a late winter omicron variant dampened risk appetite for most equities. The outbreak amplified Beijing’s strict zero-Covid-19 restrictions, grappling already tight supply chains. In addition to city-wide lockdowns across China, the Russia-Ukraine conflict and a hawkish Federal Reserve shifted capital away from EM and...

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