In the past two weeks, there has been a net inflow of $1.1 trillion into the emerging markets! The bulls have returned, and growth stocks have outperformed the market.

The Smart Finance APP noticed that developing country stock markets have seen an inflow of $1.1 trillion in the past two weeks, as concerns over global interest rates have given way to optimism that the tightening phase of the US Federal Reserve has ended. In addition, growth stocks are set to achieve their largest three-day gain since March, while value stocks have remained relatively calm.

The signals from emerging market stock investors indicate that they are no longer seeking safe havens, but are instead eager to take risks in order to achieve excess returns.

This means that fund managers are willing to hold stocks of companies with fast income growth but high valuations, such as e-commerce providers and electric vehicle manufacturers, as these companies may generate substantial returns in a less stringent policy environment. This is different from most of this year, when low price-to-earnings mature companies were favored because they often limit losses during sell-offs.

Malcolm Dorson, Head of Emerging Market Strategies at Global X Management Co., said, "The recent strong performance of growth stocks is due to the signal from Federal Reserve officials that the central bank does not need to further raise interest rates. I will focus on asset classes that have recently suffered losses but may benefit from the shift in Federal Reserve policy."

The Morgan Stanley Capital International Emerging Markets Growth Stock Index has risen 1.6% compared to its value stock index in the past three days, marking the largest increase since March 24. This continues the faster growth seen in parts of last month, making this quarter on track to achieve the best relative performance since September 2020.

Before the recent rebound, emerging market stocks suffered a $2.6 trillion sell-off as investors worried that US interest rates would remain high for a longer period of time. The slowdown in the Asian economy and escalating geopolitical tensions further worsened market sentiment. In this situation, value stocks continued their strong performance, rising to their highest level in nearly four years relative to growth stocks.

Dorson said, "The earlier value momentum made sense, with oil prices rising to $95 per barrel, boosting energy stocks, and the expectation of rising interest rates providing support for bank yields," but now, "we expect real estate or banking sectors to not receive significant support, which means that value stocks may underperform growth stocks by the fourth quarter."

The star stocks that have performed well in value stocks in the first 10 months of this year include energy companies Petroleo Brasileiro SA and Ultrapar Participacoes SA, Indian engineering company Larsen & Toubro Ltd., and beverage producer Fomento Economico Mexicano, all of which have seen gains of over 40% so far this year. Now, growth stocks are rebounding. This month, Tencent Holdings (00700) rose 8.1% and Alibaba (09988) rose 3.4%, making these two companies once again the largest contributors to the MSCI Emerging Markets Index. Naspers Ltd. from South Africa and LG Energy Solutions from South Korea are also climbing in the rankings. Taiwan Semiconductor (TSM.US), which started rising a few months ago, is further consolidating its leading position.

In the national benchmark index, South Korea, Israel, Mexico, and Brazil have performed well this month. Even in Latin America, where value stocks dominate, according to the MSCI index for the region, the highest gains are seen in growth stocks such as Magazine Luiza SA and Atacadao SA.

US ETFs also reflect a changing trend favoring growth. In November, leveraged funds that seek to amplify returns of emerging market stocks by 300% and 200% respectively brought investors returns of 15% and 9.6%. Meanwhile, another fund that invests in emerging market companies performed best in purchasing and holding stock ETFs, with most of its income coming from fintech.