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Are emerging markets on the brink of another crisis?

Diego Giudice | Bloomberg | Getty Images

Heavy selling across emerging market currencies starting late last week caught many investors off guard, but is the market facing a repeat of last year's brutal selloff?

On Friday, the Argentinean peso posted its largest one-day decline in more than a decade, while other emerging market currencies, including the Turkish lira, the South African rand and the Brazilian real, also took a battering.

(Read more: Did the Fed sink the emerging markets?)

The selloff spread to emerging market currencies in Asia on Monday morning, as the Malaysian ringgit hit a fresh four-year low against the dollar, the Philippines peso hovered close to its four-year low and the Indonesian rupiah hit a two-week low against the greenback. Global stock markets also took a hit, leading to a sharp selloff on Wall Street's three major indices on Friday and across Asian equities on Monday morning.

The selloff has proven a stark reminder of the pain emerging market currencies saw last year, when the Federal Reserve's first mention of tapering sent the currencies of countries with large current account deficits, like India and Indonesia, tumbling to historic lows. Analysts told CNBC they expected continued weakness over the coming weeks.

"The pressure on emerging markets is something we are going to see more and more in the coming weeks," Xavier Denis, economist & strategist at Societe Generale Private Banking, told CNBC Asia's Squawk Box on Monday.

"I think that the normalization [of monetary policy] from the Fed will continue to put downward pressure on emerging market currencies and emerging markets overall," he added.

(Read more: Who pulled the trigger on emerging markets?)

Meanwhile Kathy Lien, managing director at BK Asset Management, said she expected EM currencies to see a further 5 percent correction, before stabilizing.

Although continued worries over the Fed's withdrawal of stimulus is seen as a key driver for the current selloff, analysts say a number of other factors are at play. In Asia, for instance, weak Chinese data have raised concerns about the strength of the global recovery, while political tensions in Thailand have damaged sentiment.

(Read more: Emerging markets rout a reality check for Davos elite)

Sébastien Barbe, head of emerging market research and strategy at Credit Agricole, said current selling is being driven by different factors to last year's selloff, however.

"This time, EM currencies are falling even though U.S. yields are decreasing. We believe this reflects the fact that EM FX markets have shifted from FOMC-centric mode to being more focused on intrinsic EM weaknesses," he said.

"In our view, three of these weaknesses (China, external liquidity pressure and political jitters) could keep the pressure on EMs in the next couple of weeks," he said, adding that they would stabilize afterwards, possibly helped by central bank action.

Other analysts, seemed less concerned about the possibility of another emerging markets 'crisis,' arguing that last year's theme of differentiating between the weaker and stronger economies in the region was set to return.

"Market turbulence in Turkey, Ukraine and now Argentina has led to talk of a new crisis sweeping emerging markets (EMs). But the emerging world has become a far more diverse place over the past decade," said Melanie Debano, economist at U.K. research house Capital Economics.

(Read more: Emerging market opportunity in long term: Blankfein)

"The real lesson from recent events is that the need for investors to discriminate between individual EMs has never been greater… In the past, financial crises have indeed tended to sweep from one EM to another, primarily because they shared many of the same vulnerabilities. Today, the emerging world is a very different place."

Kelly Teoh, market strategist at IG Markets, said she expected the current selloff to trigger a mass withdrawal of funds highlighting domestic structural and political issues, but that in time investors would once again start differentiating between stronger and weaker economies in the region.

"There are groups within the EM space that has current account surplus and demand for their goods which will weather this storm better. As we have seen with any selloffs, the storm has to pass before investors are willing to invest again," she added.

By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie

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