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Are emerging markets so bad they’re good?

Frank van den Bergh | E+ | Getty Images

Already battered emerging markets stocks and currencies may face the specter of further outflows, but some analysts are tipping they've become the Mystery Science Theater 3000 of assets: So bad they're good.

In emerging markets, "you don't have earnings growth, ROEs (return on equity) are continuing to decay (and) forex volatility is against you. It's not the best of pictures," Bhaskar Laxminarayan, Pictet Wealth Management chief investment officer for Asia, said at a press conference last week.

But there's a saving grace: "At least from a valuation perspective, you're getting it at a discount," Laxminarayan said. "Given such a wide gap, chances are a lot of the negatives are being priced in, including currency volatility."

Emerging markets have certainly had a tough year: In addition to currencies such as Malaysia's ringgit and Russia's ruble becoming some of the world's worst performing, the MSCI Emerging Markets stock index is down around 19 percent so far this year.

Within Asia Pacific ex-Japan, shares are trading at 12.1 times 12-month forward earnings, compared with the long-term average of 12.4 times, according to data from Nomura. The 12-month trailing ROEs are at 11.2 percent, compared with the long-term average of 12.6 percent, the data show.

The segment has been hard hit by massive fund outflows over the past few months, faced with a double whammy of expectations that later this week the U.S. Federal Reserve will raise interest rates for the first time in nine years as well as slowing economic growth in China.

Global investors are estimated to have sold $40 billion worth of emerging market assets in the third quarter, making it the worst quarter since 2008's fourth quarter, during the Global Financial Crisis, according to the Institute of International Finance.

But Pictet, which had around $426 billion in assets under management as of September, expects an emerging markets recovery could start in the second half of 2016.

"The valuations are so stretched between developed markets and emerging markets that you do a reverse trade at some point," Laxminarayan said.

Pictet isn't alone in seeing a recovery ahead.

"In relative performance terms, we may well see a trough in emerging market equities versus developed market equities," Timothy Moe, chief Asia-Pacific strategist at Goldman Sachs, said at a press conference last week.

But he noted that's just because the bar for emerging markets to outperform their developed market counterparts has become so low. On a weighted average basis, Goldman expects around 3-4 percent return for Japan, Europe and U.S. equities in U.S. dollar terms, he said.

"We're starting the year still being more cautious on emerging markets than developed markets, but we think there is a chance that as we get into the second half that we might find a floor in relative performance terms and pick up a little bit of pace," Moe said.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1