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Here come the bears: EMs crisis brewing

Despite solid gains in January, emerging markets (EMs) are once again the subject of underweight calls, with some analysts predicting a full-blown crash.

A crisis in EMs could develop as early as this year, Atul Lele, CIO of Deltec International Group, told CNBC on Wednesday, citing a mix of declining U.S. dollar liquidity and falling commodity prices.

Such bearish views stand in contrast with EM's recent outperformance. MSCI's Emerging Markets Index rose more than 3 percent this past month, compared with losses in the Dow Jones Industrial Average and S&P 500. Meanwhile, a survey from Societe Generale in January revealed 70 percent of clients were bullish on EMs, nearly a one-year high.

"The fact that U.S. dollar liquidity is slowing means emerging markets are not able to fund themselves as effectively anymore," Lele said, referring to the Federal Reserve's tapering of its monthly bond-buying program.

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The Institute of International Finance recently projected a decline in total EM inflows for a second straight year in 2015 primarily due to the possibility of a U.S. interest rate hike.

"While many large EMs with well-known vulnerabilities have sought to strengthen their macro policy frameworks, and benefit from lower oil prices, analysis of past Fed tightening cycles suggests risks of heightened incidence of EM crises during the year ahead," the organization said in a report last month.

Structural weaknesses

Significant declines in crude oil and industrial metals prices are widely expected to accelerate structural weaknesses within emerging markets, especially for commodity exporting nations.

Borsa Istanbul, Turkey's stock exchange
Kerem Uzel | Bloomberg | Getty Images
Borsa Istanbul, Turkey's stock exchange

While countries like Venezuela and Russia face obvious threats due to their reliance on oil revenues, even importers may be at risk: "Take Turkey for example. It benefits from lower oil prices yet they haven't undertaken any of the structural reforms necessary and they're still heavily reliant on U.S. dollar liquidity," Lele said.

He's not alone. Last month, Citi's EMs economics team warned that "a critical mass of economies is at risk of losing investment-grade status in the next couple of years," including Russia, South Africa, Brazil and Turkey. Poor fundamentals like ballooning debt in public and private sectors outweigh improvements in the quality of economic policymaking, it said.

As a result, Deltec has an underweight position across the majority of emerging markets. Tim Condon, head of Research, Asia at ING, shares that view.

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"Mongolia is the first emerging market to go to the wall from the 2H14 commodity price crash. We do not think it will be the last, which is why we are bearish on emerging market financial assets as an asset class," Condon said in a note, referring to the mineral-dependent nation's request for financial support from the International Monetary Fund.

To be sure, there are exceptions. Deltec's Lele is positive on some emerging markets, namely India thanks to the implementation of an effective monetary and fiscal package.