The stock market is getting smoked with tech stocks leading the rout. The tech-heavy Nasdaq fell by 3% on Monday, as Apple experienced another daily steep loss of about 4% and Facebook plunged into new two-year lows.
While some investors are signaling buying opportunities for tech giants, Brett Ewing, chief market strategist of First Franklin, said emerging markets and industrial materials are better investment options than the FAANG (Facebook, Amazon, Apple, Netflix, Alphabet’s Google).
The two biggest risks weighing the market down right now is the rising interest rate and President Donald Trump’s trade war with China, according to Ewing. The two factors have especially pressured emerging markets and industrial businesses. The MSCI Emerging Markets Index has been down more than 15% since the beginning of this year while the S&P 500 holds a slight year-to-date gain of 0.6%. Shares of materials and industrial companies have struggled this year due to tariffs and supply chain disruption.
Their poor performance could mean more upside potential once the key issues get resolved, said Ewing, who sees good news emerging in the next six months. While tech stocks also have the potential to recover, Ewing believes investors have largely priced in the growth before the correction, so emerging market and industrial names present better opportunities on a risk-reward scale.
“Things revert to the mean. I think there’s an opportunity on the international front,” Ewing told Yahoo Finance.
Many emerging markets stock experienced major declines as the U.S. dollar soared. In emerging markets, a lot of companies sell commodities and prices have been hurt by a strong dollar. Also, local governments and private companies usually issue dollar-denominated debt. Weakening emerging market currencies raise fears that they will have trouble paying off the debt.
Once the Federal Reserve slows down the pace of interest rate hikes, there could be a stabilization or even a slight devaluation of the dollar. On the trade front, the Trump administration has officially resumed talks with China.
“I think they’re gonna benefit. Let this trade discussion get moving forward and I think there’s a lot of potential there,” Ewing spoke of the upcoming meeting between Trump and Chinese President Xi Jinping at the G20 summit in Argentina later this month. “I think you have less risk to the downside and more potential upside than just going into large-cap tech here.”
Krystal Hu covers technology and economy for Yahoo Finance. Follow her on Twitter.