Has the emerging market buying moment arrived?

Leslie Shaffer | Writer for
Is it time to favor the EMs again?

Emerging market assets haven't seen much love in the wake of investor infatuation with developed markets, but they may come back into fashion.

"Emerging market assets have switched from 'priced for perfection' to value or even deep value," Societe Generale said in a note, advising investors start to add exposure, particularly in emerging Asia.

(Read more: Are emerging market bonds a better deal than stocks?)

It's a major shift for SocGen, which declared "the EM party is over" back in March of 2011. The bank has raised the weight of emerging market equities and bonds in its multi-asset portfolio to 5 percent each from zero.

Emerging markets have seen a brutal sell-off this year after sharp falls in the value of the Argentine peso, Turkish lira, South African rand and Brazilian real triggered panic selling across the asset class, with analysts largely blaming the turbulence on the Federal Reserve's move to begin tapering its asset purchases.

Indonesian rupiah currencies are collected in a money changer's donation box for mosque construction in Jakarta.
Bay Ismoyo | AFP | Getty Images

So far this year, the segment's bond funds have seen outflows of $11.12 billion, while $30.35 billion has fled emerging market equity funds, according to data from Jefferies. This followed a tough 2013, which saw $14.1 billion exit emerging market equity funds, while $14.04 billion said good-bye to the segment's bond funds, according to data from Barclays.

"With tapering confirmed and ongoing, and economic growth forecasts in emerging markets significantly adjusted downward, a lot of bad news for emerging markets is priced in," SocGen said, noting the region's equities are trading at around a 30 percent valuation discount to their developed market counterparts.

(Read more: Hedge funds sit out the emerging market turmoil)

To be sure, this isn't the consensus view.

Global fund managers have cut their equity allocations to global emerging markets, with a net 31 percent taking an underweight call, the lowest allocation since 2004, according to Bank of America-Merrill Lynch's fund manager survey for March.

But it noted its survey participants believe sentiment toward emerging markets is near a low and may improve soon.

"Investors have indicated that they see value in the region," it said, noting 49 percent of survey participants believe emerging markets are the most undervalued region.

(Read more: Will emerging markets become a euro zone-style risk?)

Even as the view slowly shifts, many cite the need to differentiate.

"The story on emerging markets is to look beneath the generic asset class. In our view, you've got to be able to differentiate," Marc Desmidt, head of alpha strategies for BlackRock Asia Pacific, told CNBC. He noted that some countries, such as India and Indonesia, are making efforts to improve their economic standing and have relatively high savings rates compared with South Africa or Turkey.

Why this expert is optimistic on EMs

"There's opportunity there. And you're seeing that reflected in the market performance. Equities in India and Indonesia are at all-time high," he said.

Fund managers appear to be heeding the call for differentiation: the Bofa survey found sentiment toward Indonesia, India and Mexico has improved amid a "race to reform," while the BRIC block – or Brazil, Russia, India and China – positioning has dropped to the lowest in the survey's history.

(Read more: Emerging markets now offer 'fantastic value')

The sentiment shift is far from unambiguously positive, however.

"We are far from calling a broad-based recovery in emerging market assets," Barclays said, but it added 'cheaper valuations, lighter positioning, higher emerging market policy rates and ongoing external adjustments argue against treating emerging market assets as a clear short."

The bank said it sees opportunities for both long and short positions to play on different countries' changing economic and political prospects.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter