Societe Generale is advising investors to add to their holdings of emerging market assets after a horrid 2015, with a somewhat unlikely name at the top of the bank's wish list: Russia.
The bank is betting on a rebound in oil prices as well as cheaper valuations to underpin demand for Eastern European assets while highlighting risks to Asia given the recent rumbling in China's economy and financial markets.
"It is time to consider some exposure to emerging markets, after the significant drop in asset prices since 2010 and the strongly negative newsflow," Societe Generale said in a note last week. But it advises "cherry picking" emerging markets to avoid Asia.
"Asia is at risk given China's slowdown, potential currency depreciation and worries about corporate defaults," it said.
Emerging markets have certainly been unloved: around $74 billion flowed out of total emerging market equity funds in 2015, up from $25 billion in outflows in 2014, according to data from JPMorgan. Around $39 billion flowed out of Asia ex-Japan equity funds last year, the data show.
The MSCI Emerging Markets Asia index is trading at 11.5 times 2016 earnings after a 11.8 percent decline last year, while emerging Europe is at 3.2 times after a 17.6 percent fall in 2015, according to data from Credit Suisse.
"Eastern Europe is our favorite region, for all asset classes," including equities and fixed income, Societe Generale said. "It should benefit from the improving euro-zone outlook, European Central Bank (ECB) quantitative easing and accommodative domestic monetary and fiscal policies."
The ECB plans to extend its massive 60 billion euro a month bond-buying program at least through March 2017. That should help to keep its currency weak, supporting exports, as well as encouraging the purchase of risky assets, such as stocks and corporate bonds.
The Eurozone economy also appears to be recovering, with Markit last week saying its PMI for the economic zone hit a four-month high of 54.3 in December, up from November's 54.2, citing a "robust increase in new business."
Within emerging Europe, Societe Generale has an unusual pick: beaten down Russia on a counter-intuitive call that oil prices will recover. The bank is advising going long Russia bonds, and European companies with exposure to Russia.
That positive call follows a rough year for Russian equities, with around $1.02 billion flowing out of Russian funds in 2015, according to JPMorgan data.
Russia's economy likely contracted 3.8 percent last year, and it's likely to shrink another 0.7 percent next year, the World Bank said last week. As of 2013, natural resources, including oil, natural gas and other commodities, contributed around 18.8 percent of the country's gross domestic product (GDP), according to World Bank data.
The dependence on energy has decked Russia's economy as oil prices are trading around 12-year lows, with both West Texas Intermediate (WTI) futures and Brent tumbling to just above $32 a barrel in Asia trade Monday.
But Societe Generale expects oil will outperform over the next year, forecasting WTI at $56 and Brent at $60 by the end of 2016.
It's sticking with that call even though prices of West Texas Intermediate and Brent are plumbing 12-year lows.
"From a strategic (point of view), we keep our view that oil and oil-related assets are becoming super cheap and the risk-reward ratio to increase weightings is improving," Alain Bokobza, Societe Generale's head of the strategy team for global asset allocation, said via email last week.
But he noted that Societe Generale's oil price forecasts aren't particularly aggressive and just mark a return to 2015's mid-year levels. In 2014, oil was trading solidly over $100 a barrel.
But when it comes to Asia, Societe Generale isn't alone in its concerns about China, with the mainland markets already getting Asia shares off on the back foot so far in 2016 on concerns over an economic slowdown as well as weakness in the yuan amid heavy capital outflows.
After a wild week which saw trade halted in Chinese shares twice, setting off a global stock rout, the Shanghai Composite ended with an around 10 percent loss for the week.
"We downgraded China equity weighting to zero weight early December. I'm not unhappy to have done this call," Bokobza said.
Analysts have raised a slew of concerns about the Chinese economy as it transitions to a services-led economy from its earlier dependence on exports, including worries over the country's debt binge and excess capacity in major industries, such as steel. Chinese economic growth fell to 6.9 percent in the third quarter, dropping below the 7 percent mark for the first time since the global financial crisis of 2008-2009. That's likely to weigh on some of China's neighbors, which are often its main suppliers of raw materials.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1