Emerging market stocks, especially in Asia, have underperformed U.S. stocks this year, as the Fed's QE2 boosted expectations of an economic recovery. But recent weak data has raised concerns the U.S. economy could be stalling.
One strategist says the structural growth issues facing the U.S., as well as Europe's debt crisis, will once again drive investors back into emerging market equities.
"We have some inflation in emerging markets but here's growth, here is lower fiscal debt, here is external surpluses — I think the choice is reasonably straightforward," Emil Wolter, Regional Strategist at RBS told CNBC on Tuesday.
Wolter may be on to something. Up until April 30th, the S&P 500 was outperforming the MSCI emerging markets index. While the S&P 500 was up 7.5 percent, emerging markets were up just 4.5 percent, hurt by worries over inflation. Since then though, the S&P 500 has declined by a steeper 5.6 percent compared to the 4.5 percent drop for emerging market stocks.
Wolter is especially bullish on Taiwan stocks once the rotation back to emerging markets takes place.
"The domestic economy in Taiwan has been hollowed out for 20 years, it's really been the biggest loser of China's integration into the world economy and in particular this deflationary wave that China has unleashed upon the world for the last 15, 20 years," Wolter said.
He's betting that Chinese inflation will help rather than hurt the Taiwanese economy, because it will benefit from increased demand from the mainland and greater competitiveness for its products.
"We're seeing a new consumption cycle, a new investment cycle, a new credit cycle in Taiwan. So this means that actually, growth will pick up onto a trajectory that people can't really imagine because it's been so bad for so long."