(Bloomberg) -- Emerging market stocks have been in a record stretch of bear market, surpassing their rough patch during the dot-com era and likely in for more pain given a surging dollar and China’s growth uncertainties.  

It has been 594 days since the MSCI Emerging Markets Index closed at its peak in February 2021, the longest such period ever, according to Bloomberg-compiled data. The previous record was 589 days that ended in September 2001, according to an analysis by Morgan Stanley.

There are enough reasons to suggest that the weakness may last for a while, given an unapologetically hawkish Federal Reserve that will continue to boost the dollar’s value and draw funds away from emerging markets. Uncertainties also linger over the outlook of Chinese companies, which carry the biggest weighting in the index, due to the country’s rigid Covid policy and escalating tensions with the West. 

“EM equities will continue to face pressure from dollar appreciation and weak US equity markets,” Jon Harrison, managing director for emerging-market macro strategy at TS Lombard in London, wrote in a note Monday. “EM outflows are set to accelerate as external conditions deteriorate.”

The MSCI EM benchmark has fallen about 39% from last year’s record versus a drawdown of 66% during the global financial crisis.

An analysis of global EM equity exchange-traded funds by TS Lombard shows that the cluster of stocks last month suffered their largest net outflow since the onset of the pandemic, compared with little or no net flow in the preceding three months.

Still, Morgan Stanley’s strategists including Jonathan Garner believe a so-called classic capitulation trough could likely be forming as EM stocks have moved close to his bear-case targets and due to seasonal factors, they wrote in a note dated Sept. 20. 

Garner warned on May 10 that Asia and emerging-market equities are entering the late stages of a bear market. Since that day’s close, the MSCI Emerging Markets Index and the MSCI Asia Pacific excluding Japan Index have both dropped about 13%, underperforming the MSCI World benchmark.

“Six of the prior 10 bear markets in Asia/EM equities troughed in September or October,” Garner and his colleagues wrote. They are monitoring 10 signals including the dollar’s strength, the semiconductor sector’s performance and the breadth of earnings revisions to call the current cycle’s bottom. 

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