The emerging market rout is hiding funds' fickle switch into riskier sectors as the infatuation with emerging Asia's rising middle class and its consumption story fades, Citigroup said.
While current-account deficit countries, such as India and Indonesia, have been hit the hardest, the rout is really about investors preparing for better growth ahead, according to the bank.
Until now, "investors have liked current account deficits as they signal excessive consumption over savings," the bank said in a report.
(Read more: Emerging markets: dissecting the good from bad)
"Within emerging markets, the belief was that a dollar of earnings from the Philippines, Thailand, etc., was better than a dollar of earnings out of Korea or China. What was better about those earnings than those out of the likes of Korea or China is that they were domestic – and domestic earnings are more resilient – i.e. better – than those generated by foreign, read global, means," it said, calling the end of the domestic demand theme.