Has the EM rally peaked? In recent months a handful of largely China-based tech stocks have gone on a tear to put a floor underneath emerging-market stocks, bringing emerging markets on par with equities in developed countries. Outside of China, though, the outlook is a little more precarious. WIth the global tech boom seemingly running out of steam and a host of problems plaguing the emerging world, investor enthusiasm is dwindling, despite the cheap valuations, Barron’s says, citing industry analysts.

Too good to be true? An array of bargains appears to be on offer in Brazil, India and other markets beyond China, where currencies are around 20-30% below historic averages. “Whether it’s the [South African] rand, the [Indian] rupee, the [Mexican] peso, or the Brazilian real, currencies are incredibly undervalued,” says Ricardo Adrogue, head of global sovereign debt at Barings. Equities, too, look undervalued: companies trade at less than half the average price-to-book ratio than those in the US, with blue chip firms offering 5-6% yields. EM central banks have also slashed interest rates, causing domestic savers to pile into equities.

Investors are holding back for now: Despite the generous returns on offer, the continuation of the pandemic and the rapid accumulation of debt is giving investors pause for thought. India and Brazil are both struggling to get a handle on the outbreak, while countries across the world have taken on worrying levels of debt to prevent their economies from spiralling. “During the next quarter or the beginning of next year, markets are going to ask, ‘What are you doing to offset this debt?'” notes Eric Baurmeister, senior portfolio manager for emerging markets debt at Morgan Stanley Investment Management.