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.