Since the Fed first hinted at the possibility of a taper in May, anxiety has roiled emerging markets

Since the Fed first hinted at the possibility of a taper in May, anxiety has roiled emerging markets. Over the last three months, EM stocks have fallen 12% in dollar terms, underperforming developed markets by 10% while EM currencies on average have tumbled by 7%. Russ Koesterich, Chief Investment Strategist at BlackRock, says EM stocks look undervalued relative to EM markets' growth potential and healthy corporate profits, [and] have the potential to outperform their developed market counterparts over the next several years. Although he sees few immediate catalysts for a near-term EM rally, Koesterich highlights four signposts that could signify a significant and prolonged reversal in EM performance: (1) More sustainable growth, as evident in less volatile GDP growth (2) Inflation that is more under control, as evident in stabilization of inflation expectations (3) Asset-price bubbles deflating (4) EM countries becoming less reliant on short-term foreign capital funding. (VIEW LINK)