(Bloomberg News) The longest losing streak for developing-market equities in more than a decade is turning investors who shunned the stocks a year ago into buyers after valuations fell to the lowest levels since March 2009.

TCW Group Inc.'s Komal Sri-Kumar, who advised purchasing options as insurance against emerging-market declines in October 2010, now recommends shares of consumer companies after inflation slowed in China and central banks in Brazil and Turkey cut interest rates. HSBC Private Bank's Arjuna Mahendran is adding Chinese stocks with dividend yields of more than 4 percent. Harris Private Bank's Jack Ablin said he may boost emerging-nation shares to 10 percent of holdings from 3 percent.

MSCI Inc.'s emerging-market gauge sank 30 percent from its May 2 high and slumped 23 percent in the three months to Sept. 30, trailing the advanced-nation index for four straight quarters for the first time since Russia's 1998 default, as Europe's debt crisis and concern the U.S. economy may contract led investors to flee riskier securities. The drop sent shares in the MSCI Emerging Markets Index to 1.5 times net assets, the lowest level versus the MSCI World Index in 30 months.

"It may be time to start getting your toes wet," Sri- Kumar, who helps oversee about $120 billion as chief global strategist at TCW in Los Angeles, said in a Sept. 27 phone interview. "The emerging markets are not going to have the recession of the kind I anticipate for the U.S. and Europe."

MSCI's developing-stock gauge trailed the MSCI World index by 6.1 percentage points last quarter, the most since the third quarter of 2008. Brazil's Bovespa index fell 16 percent, Russia's Micex Index lost 18 percent, the BSE India Sensitive Index slid 13 percent and China's Shanghai Composite Index retreated 15 percent.

Emerging-market equity funds have posted nine straight weeks of outflows, with investors withdrawing $2.6 billion in the seven days ended Sept. 28, according to data compiled by Cambridge, Massachusetts-based research firm EPFR Global. Industrial companies and raw-materials producers led declines during the past three months on concern falling demand from advanced countries will erode profits.

The drop in energy and food prices that dragged the S&P GSCI Spot Index of commodities down 12 percent last quarter has given central banks room to reverse interest-rate increases that had turned emerging-market stocks into laggards the previous three quarters. Brazil's central bank cut its benchmark interest rate for the first time in two years in August, while Turkey reduced borrowing costs to a record low. China has kept its lending rate unchanged since July after three increases this year.

Peak Inflation

"Maybe all of this mess is going to help them because it will bring the peak in inflation earlier than it otherwise would have been," Jim O'Neill, chairman of Goldman Sachs Asset Management in London, said in a Sept. 23 interview on Bloomberg Television. O'Neill coined the term BRIC in 2001 to describe Brazil, Russia, India and China.

Emerging-market stocks began the fourth quarter with losses. The MSCI gauge slid 2 percent to 834.96 at 11:03 a.m. in London, extending yesterday's 3.2 percent slump. The MSCI World Index has declined 3.8 percent in the past two days.

Barton Biggs, the founder of hedge fund Traxis Partners LP in New York, says it's too early to invest in emerging markets because government leaders haven't found solutions for Europe's sovereign-debt crisis or the faltering U.S. economic recovery.