Expectations that the Federal Reserve is on course to start tightening policy has spurred fears of a return of last year's emerging market turmoil, but Societe Generale tips a strong dollar as a bigger risk.
"A strong dollar tantrum could be a more worrying scenario than a Fed tightening tantrum," Michala Marcussen, global head of economics at Societe Generale, said in a note dated Sunday.
The U.S. dollar index has climbed around 7 percent this year, with the Fed now nearly completing the tapering of its asset purchases, with markets widely expecting interest rate increases to begin sometime next year.
Some analysts are concerned this will spur a repeat of the "taper tantrum," when concerns about the Fed's move to begin tapering caused a brutal selloff in emerging market assets earlier this year and last year.
"Hope today is that a strong dollar will cap U.S. inflation, delay Fed tightening and boost exports to the U.S.," Marcussen noted, but she believes for that to happen, the U.S. dollar would need to strengthen so much that it would signal much weaker growth in the rest of the world.
To delay Fed rate hikes, the euro would need to fall to $1.10, while the U.S. dollar would need to fetch around 120 and 6.50 yuan, she said. Early Tuesday, the euro was around $1.2690 and the dollar was fetching 109.40 yen and 6.1495 yuan.
"In such a scenario, [a strong] dollar would equate to further capital outflows, placing further pressure on already vulnerable economies," she said. "A 'dollar tantrum' scenario could well prove more painful than a 'Fed tightening tantrum,' assuming the latter comes with better growth in the rest of the world."
To be sure, she doesn't believe the dollar's move yet qualifies the currency as "strong," with it still trading just below its long term average, although Societe Generale expects the trade-weighted dollar will rise further into 2015.
Others expect some emerging market assets will react negatively to the dollar's recent advance.
"The upcoming Fed exit will continue to lead front-end rates higher in the quarters ahead," Goldman Sachs said in a note last week. "In a market environment where China growth expectations decline, front-end U.S. rates gradually push higher and emerging market front-end yields remain anchored around current levels, there is room for emerging market currencies (particularly high-yielding ones) to weaken further."
But Goldman is looking to Europe for cues on whether any emerging market selloff will be confined to the currencies or if it will spill over to other assets. "Heightened Euro area growth concerns can weigh on risky assets, including parts of emerging market credit and equities," it said.
Otherwise, it believes the similarities with the market conditions preceding the taper tantrum aren't as worrying this time around, in part because the euro's weakening against the dollar provides some relief for emerging markets on a trade-weighted basis, while any U.S. rate rise will likely be less intense than in 2013. "Emerging market assets may find this combination easier to digest," it said.
Some don't expect the rising dollar will spur another rout in emerging markets. "We don't see a strong dollar as a reason to adopt a risk-off strategy," Citigroup said in a note last week. "Emerging market equities are not as beholden to the U.S. dollar as is commonly believed."
Citi expects emerging markets' move toward floating exchange rates, as well as the regions' increasingly international businesses should reduce the negative relationship with the U.S. dollar. Indeed, rather than using a stronger dollar as an excuse to sell emerging market equities, it prefers to overweight Japan, as a weaker yen typically boosts stocks there.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter