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Emerging markets: Most-shunned to most-loved?

What a difference a few months can make. After being one of the most shunned asset classes last year, emerging markets are fast winning-back investors' love.

Following a weak start to the year, emerging markets have found renewed strength with the MSCI Emerging Markets Index rising 7 percent since February. The benchmark S&P 500, by comparison, is up 5.8 percent over the same period.

Mark Yusko, CEO of Morgan Creek Capital Management, believes emerging markets are "back" as efforts by policymakers to correct their economic imbalances have fueled the enthusiasm towards the asset class.

"(Last year) people gave up on the emerging markets as for dead. But I think emerging markets could be a real strong performer this year, and the Fragile Five in particular," he said, referring to the five economies, including India, Indonesia, Brazil, Turkey and South Africa, which were the hardest hit during the emerging market sell-off last year.

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Noel Celis | AFP | Getty Images

Yusko says that India could be one of the "surprise" markets of 2014, noting the turnaround in the country's stock market and rupee since Raghuram Rajan's ascent to the governor's post at Reserve Bank of India last September.

Indian shares posted their best monthly gain in five months in March, helped by heavy foreign buying on expectations the opposition – the market-friendly Bharatiya Janata Party (BJP) –would win elections set to conclude by mid-May. The benchmark Sensex is up 6 percent year to date, while the rupee has gained over 3 percent against the U.S. dollar over the same period.

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Jack Bouroudjian, chief investment officer at Index Financial Partners, agrees emerging markets have turned a corner.

"I think they turned a couple of months ago. The fact is when they [Federal Reserve] started mentioning tapering last year, we saw a dip in [emerging markets]," Bouroudjian said, referring to the central bank's announcement last May to begin scaling back its massive asset purchases, which triggered a huge selloff in emerging markets.

"[But] when they started doing it, we saw a recovery in the emerging markets. That tells you where the money is going," he noted. "I think in a year, we're going to be talking about how wonderful a year emerging markets had."

Data also point to a reversal in investor sentiment. Dedicated emerging equity funds saw outflows of just $0.05 billion globally in the week to March 26, according to data from funds tracking company EPFR Global – a major turnaround from investors which have pulled around $40 billion out of the asset class so far this year.

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However, Bouroudjian cautioned that investors must exercise discretion when investing in the space. He is staying clear of Turkey and Russia, but is upbeat on the outlook for Southeast Asia and even China – a perennial market laggard – which he says could surprise investors towards the end of the year.

Martin Lakos, division director at Macquarie Private Wealth, however, is not sold on the recent turnaround in emerging markets.

"If we're doing a massive asset allocation we'd still be allocating more towards growth assets in the developed world as against emerging markets," he said. "We'd much rather see more structural reforms in other emerging markets [before increasing our exposure]."