2022 was not a form 12 months for the broader emerging market complex. The iShares MSCI Emerging Markets ETF (EEM) has dropped 22% 12 months so far. That puts the fund on pace for its biggest one-year loss since 2008, when it tumbled 50%. Three key drivers of this underperformance were steep declines in economic activity in China as a consequence of the country’s zero-Covid policy, a powerful dollar and better rates of interest all over the world. Looking ahead, strategists and a few widely followed investors on Wall Street see a greater 12 months ahead for emerging markets, especially as China starts to unwind its strict Covid protocols and the dollar eases off its highs. “We will have a spending boom in China, not less than in the primary half of the 12 months,” said Mehran Nakhjavani, emerging market strategist at MRB Partners. “Which means, with a market already exposed heavily to consumer earnings … there’s going to be really good support for Chinese stocks,” which is able to boost emerging market equities more broadly. China reopening Earlier this month, the Chinese government implemented sharp changes to its Covid policies, allowing domestic travel and quarantines at home in a move to maintain businesses running. Among the many changes, people will not need a negative Covid test to travel to a unique a part of the country. Local authorities have also removed many testing requirements. The changes from Beijing got here just a number of weeks after protests erupted across China over the country’s strict Covid controls . Demonstrators clashed with authorities in several major cities, including Shanghai and Beijing, after 10 deaths in a constructing fire in Urumqi, Xinjiang in late November was blamed on the old quarantine policy. “Whenever you have a look at the recent events of the past few weeks, it’s pretty clear that zero-Covid is out the window. It’s over,” Nakhjavani said. Now, China will “tolerate very high levels of infection.” Nakhjavani is not the just one who sees China reopening as a positive catalyst for emerging markets. JPMorgan chief global markets strategist Marko Kolanovic said in a Dec. 8 note that he sees emerging market stocks returning 14% to investors in 2023 , citing the potential for strong economic growth in China because the country reopens for a part of the bounce. The iShares MSCI China ETF (MCHI) has dropped 26% in 2022, on pace for its worst 12 months on record. Meanwhile, the Shanghai Composite is down 15%, headed for its biggest one-year loss since 2018 — when it shed 24.6%. The dollar One other catalyst that would drive gains in emerging markets is a possible decline within the dollar. A weaker dollar tends to spice up emerging markets as debt in U.S. dollars becomes easier to service. The U.S. dollar has been on fire in 2022, rising greater than 8% against a basket of major currencies. That may be the currency’s biggest annual gain since 2015, when it jumped 9.5%. At one point this 12 months, the greenback traded at levels not seen since May 2002. This 12 months’s gains got here because the Fed lifted rates of interest to fight a 40-year high in inflation. Nevertheless, the dollar has cooled off dramatically since reaching those 20-year highs in September. Since then, the greenback has fallen greater than 9%. Billionaire investor Jeffrey Gundlach said he thinks the dollar has already reached a top and that it should proceed to weaken. “I do think the dollar has peaked out … which does suggest that investments in emerging markets like emerging market equities are probably going to be winner in 2023,” Gundlach, the CEO of DoubleLine Capital, said Dec. 6. “It is time to buy emerging market equities if you’ve got an annual allocation switch. … I actually do think the time is true.” One other potential catalyst for emerging markets could are available the shape of a recovery within the semiconductor industry, which might in turn boost stocks in Taiwan and South Korea — two major industry hubs. Semiconductor firms have been hurt by continued supply chain disruptions in addition to supply/demand imbalances. On Wednesday, Micron Technology reported weaker-than-expected quarterly results, with management noting : “The industry is experiencing essentially the most severe imbalance between supply and demand in each DRAM and NAND within the last 13 years.” Up to now 12 months, the VanEck Vectors Semiconductor ETF (SMH) has dropped greater than 34%.Nevertheless, MRB Partners’ Nakhjavani thinks that the industry downturn could reach a bottom over the following two quarter, priming it for a powerful second half of 2023. “That may help South Korea and Taiwan,” he said. The iShares MSCI Taiwan ETF (EWT) has fallen nearly 40% in 2022, while the EWY — which tracks the South Korean stock market — has shed 27%. ‘A game of two halves’ To be certain, not everyone seems to be as sanguine on emerging markets. David Lubin, head of emerging markets economics at Citi, thinks emerging markets can have 12 months in 2023, but only after a rocky start as a consequence of continued hawkishness in U.S. monetary policy. “Emerging markets in 2023 looks to us like a ‘game of two halves’, with the latter a part of the 12 months arguably far more benign for investors than the beginning,” he said in a note earlier this month. “Probably the most obvious near-term query for EM is whether or not inflation stays a sufficiently big threat to wish more monetary tightening. We predict not, as a consequence of an overall weak growth outlook, though central banks will remain wary of anything that would spark an acceleration.” “What EM wants, ideally, is to get to a spot characterised by each loosening U.S. monetary conditions and a powerful recovery in China. Since we predict that these two conditions won’t properly materialize until the second half of the 12 months, the nearer term will remain characterised by a powerful dollar, tightening U.S. monetary policy and Chinese uncertainties related to each Covid and real-estate investment,” Lubin added. The Fed hiked rates through 2022, with other central banks following suit of their respective regions. Most recently, the Bank of Japan modified its yield curve control policy to permit the 10-year Japanese government bond rate to maneuver 50 basis points above or below its 0% goal. The news sent ripples through global financial markets , pressuring risk assets. “The move was taken as a sign that no central bank could possibly be relied on to stay dovish,” said Mark Haefele, global wealth management chief investment officer at UBS. Meanwhile, the Fed indicated at its December meeting that it sees the ” terminal rate ” — the extent at which it might feel comfortable stopping its rate hikes — at 5.1%. That is a half point higher than a September forecast for a terminal rate of 4.6%. Methods to play emerging markets in 2023 Regardless, there are several ways for investors to get exposure to emerging markets. Perhaps the simplest way is by investing within the iShares MSCI Emerging Markets ETF (EEM). The fund is invested in greater than 1,200 firms across a number of developing markets. Alibaba, Vale, Tencent and Taiwan Semiconductor are amongst EEM’s biggest holdings . The fund — which has an expense ratio of 0.68% — is heavily exposed to China, with the country accounting for 31.55% of its total market value. One other vehicle through which to play emerging markets is the First Trust Emerging Markets Small Cap AlphaDex ETF (FEMS) . The fund is the best-performing emerging markets ETF this 12 months, in keeping with Morningstar, with a year-to-date return of just over 1%. It also has a powerful track record, outperforming 98% of funds in its category over the past 10 years. Its expense ratio is available in at 0.8%. The ETF’s managers assign different weightings to its holdings based on “what we view as favorable growth and value characteristics,” said Ryan Issakainen, senior vice chairman at First Trust Portfolios. Other variables corresponding to price to book and return on assets are also taken under consideration when assigning weights. For investors looking to take a position in individual emerging markets, they’ll turn to the iShares MSCI ETFs tracking markets corresponding to Turkey, Mexico, and South Korea, for instance. And, while buying shares of individual firms could be difficult, a few of the biggest EM firms are also listed on U.S. exchanges, amongst them JD.com , HDFC Bank , Petrobras and SK Telecom . Shares of Chinese e-commerce company JD.com have dropped about 18% 12 months so far, but are up greater than 14% within the fourth quarter. India’s HDFC Bank, meanwhile, has had a stellar 2022, gaining just over 3%. Petrobras is just down 5% 12 months so far, while South Korea’s SK Telecom has dropped 22%. — CNBC’s Michael Bloom contributed to this report.