SHANGHAI: Emerging markets (EM) are well positioned to stare down a United States recession and may even be able to lure investors their way.

That’s the message from money managers, including JPMorgan Chase & Co and Deutsche Bank AG, even as fears of a contraction in the world’s largest economy spark a dash into treasuries and other haven assets.

Beyond the short-term turbulence, they say, developing nations will be cushioned by cheap valuations, higher yields, faster growth and above all, a resurgent China.

That sounds like a tall order given the current scale of losses in EM. Stocks and bonds have been gripped by the sharpest slump since the 1990s, while currencies are suffering their worst losses on record.

Argentine assets are set for increased scrutiny following Saturday’s sudden resignation of Economy Minister Martin Guzman and a leftist economist to replace him.

So why are investors expecting the developing world to show resilience when a US recession hits.

History shows that mere expectations of US economic trouble spark an early selloff across EM and leave them cheaply valued when the contraction actually arrives.

For instance, the US exited the so-called Great Recession only in June 2009, but EM stocks and bonds had bottomed out in October 2008 itself, even before the Federal Reserve started quantitative easing.

This time, the selloff in EM began in the first quarter of 2021, a full year before it started in developed markets.

“EM assets are cheap relative to history and to their developed-market peers,” Grant Webster, Werner Gey van Pittius and Peter Kent of Ninety One, wrote in an email.

Of all the factors investors say would minimise the impact of a shrinking US economy, none ranks higher than China.

They are betting on a rebound in the world’s second biggest economy in the second-half as Covid restrictions are eased and policy makers loosen monetary settings.

Still, the picture is diversified. While growth risks are rising in countries like the Czech Republic and Chile, the outlook is strong in economies such as Poland and recoveries continue in South Africa and Mexico, the bank said.

“A broad-based EM recession is not our baseline, even if our colleagues expect one in the US,” said said Oliver Harvey, who heads currency research for central and eastern Europe, the Middle East, Africa and Latin America at Deutsche Bank.

 - Bloomberg