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Strong dollar: Is another EM tantrum here?

The heady combination of a surging dollar and expectations of a U.S. rate hike has once again sent emerging markets (EM) into a spin, but the fallout may not be severe as in the past according to analysts.

The Indonesian rupiah slumped to a 17-year low against the dollar on Wednesday, while the South African rand hit a fresh 13-year low at about 12.3775 per dollar before recovering.

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In fact, this week has seen renewed pressure on currencies from Brazil to Turkey, raising fears that a resurgent dollar will lead to financial pressure on emerging markets.

"Specifically, the worry is that a rise in the dollar will lead to strains in the balance sheets of EMs (emerging markets) which have borrowed in foreign currencies. After all, it was a rally in the dollar which triggered the series of EM crises in the 1980s and 1990s," William Jackson, senior emerging markets economist at Capital Economist, said in a note Wednesday.

Chris Ratcliffe | Bloomberg | Getty Images

However, he said that, since then, emerging economies had undergone "substantial" structural changes.

"Most EMs now have flexible, rather than fixed exchange rates, meaning that currencies adjust gradually to shifts in capital flows," Jackson added. "Moreover, EMs have tended to borrow increasingly in local currencies, rather than in foreign currencies, mitigating their vulnerability to exchange rate depreciation."

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Morgan Harting, senior portfolio manager at AllianceBernstein, told CNBC that dollar-denominated debt was not as big an issue for corporates in emerging markets compared with 15 years ago.

"The reality is that the credit worthiness of EM borrowers has improved dramatically over the last 15 years -- balance sheets are better. There are pockets of concern such as Chinese property but I'm not worried about a wholesale credit default crisis just because of dollar strength in EMs," he said.

Analysts also point to some strength in some members of the "fragile five" – Indonesia, India, Turkey, Brazil and South Africa. These were the emerging markets hardest hit when talk of a phasing out of U.S. quantitative easing roiled global markets almost two years ago.

Take India, for instance. Its currency has recovered about 10 percent of its value from a record low hit in August 2013 when a rout in emerging markets focused attention on its wide current-account deficit and sluggish economy.

Reforms taken to tackle the deficit and confidence in a proactive central bank have helped boost the rupee, which is one of the few emerging market currencies to have strengthened against the greenback this year.

Turkey, meanwhile, announced on Wednesday that its current account deficit was 40 percent below year-ago levels, helping the lira bounce off this week's record lows versus the dollar.

Still, Turkey, Brazil and South Africa are the countries analysts say remain the most vulnerable to dollar strength, with the impact likely to be most felt through rising inflation.

Brazil's currency, the real, has shed 14 percent of its value against the dollar so far this year. The South African rand has tumbled just over 6 percent and the Turkish lira is down about 11 percent.

"All in all, dollar strength presents a headache for a handful of EMs, including familiar faces – Turkey, Brazil and South Africa. But for most, the macroeconomic impact is unlikely to be particularly large," said Jackson at Capital Economics.

AllianceBernstein's Harting added that there was an opportunity in beaten-down emerging markets.

"If investors are selective about EMs, they can pick up bargains that are simply unavailable in Europe Japan and the U.S. at an (stock) index level," he said.

While Virginie Maisonneuve, CIO of global equities Pimco, told CNBC Europe's "Squawk Box" she had been overweight on China since October.

"I like consumer and tech plays, the Asian consumer bet," she added.

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