Singapore: Expect more short-term pain, investors said, after emerging-market stocks tipped into a bear market.

The MSCI Emerging Market Index closed down 0.3% in New York on Thursday. That took its decline from a high of 26 January to just over 20%, the threshold for a bear market. The measure rose 0.1% as of 1:15 p.m. in Hong Kong on Friday.

Emerging-market assets are under pressure from a stronger dollar and rising US interest rates, as well as American protectionism. Contagion concern has come to the fore in recent weeks as the most vulnerable developing economies — Argentina and Turkey — fell into crises. Shares are likely to drop a further 10 percent from here, said Nader Naeimi, the head of dynamic markets at AMP Capital Investors Ltd. in Sydney. “Another leg lower, and we will have massive buying opportunities," he said.

While Asian economies have sounder fundamentals, the region makes up about three-quarters of the emerging stocks gauge and has suffered by association. An index of developing-nation Asian stocks is down 3.6% this week, and is trading near the lowest in more than a year.

The focus of the emerging market sell-off has shifted to stocks this week. The MSCI Emerging Markets Currency Index rose 0.2% on Friday, paring its loss so far this week to 0.6%.

This year’s reversal in emerging stocks comes after an upswing that started in January 2016 and lasted for around two years. Losses have intensified over the past week and a half amid contagion concern and as investors wait to see if the US will go ahead with a plan to impose tariffs on an additional $200 billion of Chinese imports. A public consultation period on the proposal ended on Thursday.

The impact of any worsening in the trade war on the Chinese economy will be crucial for the outlook for developing nation stocks. The Asian giant contributes more than 30% of global growth and is the biggest trading partner for many emerging markets.

There’s likely to be a China rebound in the fourth quarter as it often takes three months for fiscal and monetary easing to feed through to the real economy, said Ben Luk, a global macro strategist at State Street Global Markets in Hong Kong. This view “remains core to why we have not downgraded emerging markets to a negative bias," he said. Still, “we believe it’s too early to tap back into EM stocks as the negative sentiment on politics and trade will continue to dominate short-term performance."

The MSCI Emerging Market Index has fallen to trade on a 12-month forward price-to-earnings ratio of 11 times. That’s the lowest since March 2016 and compares with a high of over 13 times at the market peak in January.

Investors who are able to ride out more volatility in the near term should eventually be rewarded with a rebound, said Suresh Tantia, an investment strategist at Credit Suisse Group AG in Singapore.

“Emerging-market equities are handcuffed by trade uncertainty and concerns around contagion risk at this point of time," he said. “We believe they offer tremendous value as the growth outlook for EM remains healthy and valuations have become very attractive."

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