JPMorgan advised its clients last week to stay underweight all emerging-market assets, citing capital outflows and a “negative momentum” in expectations for growth.

“Developed-market investors have been heavily favoring emerging-market bonds and equities in recent years” because their economies were expanding rapidly and their assets were “systematically cheap,” JPMorgan strategists led by Jan Loeys in New York wrote in a June 14 note. “They are now starting to wonder whether this is still the case, and are slowly moving to neutral on emerging markets.”

The World Bank lowered its forecast this month for China’s growth in 2013 to 7.7 percent, which would be the slowest since 1999, from an 8.4 percent estimate in January. The Washington- based institution cut its forecast for developing-nation growth this year to 5.1 percent, from 5.5 percent. That’s still more than quadruple the 1.2 percent forecast for advanced economies.

Bigger Gain

Even with the recent declines, the MSCI emerging-market stock index has advanced 222 percent since the end of 2002, compared with an 85 percent increase in the S&P.

JPMorgan’s currency gauge has returned 103 percent in the same period, and emerging currencies make up three of the five top performers in the global exchange market. The real is up 59 percent since the end of 2002.

Viktor Szabo, who helps oversee $12 billion in emerging- market assets at Aberdeen Investment Management Ltd., said the selloff has made some emerging-market currencies attractive. The real is worth buying because bond yields have risen to a level that compensates for the risk, he said.

Yields Jump

The average yield on emerging-market government bonds jumped to 6.25 percent on June 11, the highest in a year, before falling to 6.19 percent, JPMorgan indexes show. Brazil’s benchmark 10-year note yield rose to 11.5 percent, from 9.2 percent at the start of the year, according to data compiled by Bloomberg.

“We’ll see continued appreciation of emerging-market currencies” should volatility decrease, Szabo said in a June 14 phone interview from London. “Looking ahead, we’re still positive on China, the U.S. and Japan. We don’t expect a further drag on emerging markets.”