A golden opportunity for investing in emerging market equities may be around the corner, according to a contrarian strategist, who believes the Federal Reserve's imminent rate increase will be the ultimate opportunity for the battered asset class.
"Our view has been, you want to buy EM, and very aggressively, but you need a catalyst and that catalyst is going to be U.S. rates – the lift-off," Jason Ambrose, founder and CEO at Vanda Research told CNBC on Friday.
"Fed lift-off will be a 'sell the news' event, causing crowded trades to unwind. Two of the most crowded trades in the world are long USD and underweight ASEAN equities; both will reverse on liftoff," he said.
Emerging markets headed further south on Friday, following sharp losses on Wall Street overnight and on renewed concerns over a slowdown in China after a key gauge of the country's manufacturing sector fell to its lowest since the global financial crisis.
Taiwan's Taiex index, Vietnam's VN index and China's Shanghai Composite index led the losses, sliding as much as 4 percent.
When the Fed hikes rates, attention will shift to U.S. macroeconomic data, which has been surprisingly strong lately, said Ambrose. This will be positive for emerging markets, he said.
"When the U.S. starts to care about U.S. macroeconomics – at the moment it only cares about oil – what do you think happens to EMs then? EMs will rip at a time of extreme bearishness," he said.
"I don't think we're there yet, we've got a bit of time to wait, but when do get through that period, EM is going to look like the best trade I've seen in many years," he added.
Emerging markets outflows have accelerated in the recent months, with $940 billion pouring out over the past 13 months, almost double the $480 billion that flowed out during three quarters during the 2008/09 financial crisis, according to the Financial Times. The outflows have been been triggered by a host of factors including concerns around higher U.S. interest rates, slowing growth momentum and weakening currencies.