Battered equity markets have led to investors eyeing some of the cheapest valuations in decades, but the "double black swan" events of the oil price collapse and the coronavirus pandemic are set to spell the first aggregate contraction in emerging market GDP since records began, research suggests.
While traditionally the world's driver of economic growth, governments across emerging markets have been forced to all but shut down their economies to fight the spread of the virus since the start of the year.
As a result, Capital Economics now warns that it expects aggregate EM GDP to fall by around 1.5% this year, the worst downturn - and first contraction - since records began in 1951.
For context, the weakest aggregate growth in emerging markets over the past 30 years was a 1.1% GDP increase in 1981, according to the International Monetary Fund, while 2019 growth was 3.9% bringing total GDP to $37.1trn.
For emerging Asia, Capital Economics expects the economic impact to be "markedly worse than during the 1998 financial crisis" while the experience for Latin America, a number of countries in which are oil export-dependent, will be "comparable" to that of the early 1980s debt crisis.
Capital Economics said: "[Emerging market nations] with good healthcare systems, strict containment measures, and looser fiscal and monetary policies [including much of emerging Asia and Europe] have a good chance of rebounding strongly in H2.
"But for those without the capacity (or willingness) to contain the virus, or enact large stimulus measures, the recovery is likely to be slower and delayed. This applies to parts of Latin America, the Middle East, and Africa."
The impact of the pandemic has driven investors out of most emerging market equities, with the MSCI EM index down 18.4% year to date, compared to the MSCI World's decline of 15.6%, while losses over the period in the IA Global Emerging Markets sector have averaged 22.4%, according to FE fundinfo.
Investment director responsible for GAM's emerging markets equity strategies Tim Love described the combination of the oil price collapse and the pandemic as a "double black swan event", which has "exacerbated credit risk and growth risk", making it "difficult to predict with any degree of accuracy, the fundamentals, outlook or evaluations".
However, Love has used the sell-off as an opportunity to target cheaper valuations in companies with "consistency of earnings" and those geared towards the "new world economy", such as cloud capabilities.
He said that now may be a good time for investors to rotate out of more expensive assets like Chinese A-shares, which have held up relatively well so far this year, and gold into "bombed-out plays" in Russia and Brazil.
He added that an improvement in newsflow on oil and the pandemic will quickly improve the outlook for emerging market equities.
"Will the delta of change on the coronavirus be less negative? Will the delta of change on the oil crisis be less negative? I would say yes and yes," Love argued.
"The fundamentals offer an incredible opportunity to exploit, especially for the liquid, high quality emerging market plays.
"You have got three more months of delicately walking across crevasses now, but that is a small risk for the reward which could be huge."
Similarly, lead manager of the Somerset EM Discovery fund Mark Asquith said while a further market decline "is not out of the question", now is a "very attractive entry point".
He added: "Our team is currently fielding an unprecedented amount of buy recommendations from the analysts. At the same time, we believe almost every stock within the current portfolio deserves additional capital - the challenge is picking the best place to invest."