Emerging market assets have suffered through a brutal selloff, but now the sentiment tide is taking a sharper turn toward the once-shunned segment.
"It's been a tough 12-18 months for emerging markets. We find that positioning in these markets just broadly across the region is at its lowest point in years," Gokul Laroia, co-CEO for Asia Pacific at Morgan Stanley, told CNBC.
"There's good reason for this. These markets are experiencing a growth slowdown. I don't believe that is going to reverse itself anytime soon," Laroia said. But he added, "at this point we feel these markets are under owned for sure, undervalued selectively and present opportunity. And over the next 12-18 months, we're very positive. We think that this cycle is going to turn."
Emerging markets took a beating early 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.
Since March, protests and fighting in Ukraine have also weighed on the segment. So far this year, around $24 billion has flowed out of emerging market equity funds and $7.29 billion has exited emerging market bond 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.
Morgan Stanley expects funds will return, but the pace will depend on how quickly emerging market economies' planned reforms materialize.