Emerging markets have performed well and remain an enticing, and under-owned, owned asset class despite their strong earnings and attractive valuations, a major asset manager said on Tuesday.
Sean Taylor, chief investment officer for APAC at Deutsche Asset Management, told CNBC's "Street Signs" that optimism is here to stay when it comes to emerging markets — at least for the next three years.
"We've actually seen quite a decent synchronized global recovery, particularly in trade coming through. If that is sustainable, EM is in a very good position particularly, if some of the bottom-up reforms continue," he said.
"In the debt space, we're very selective. We prefer hard currency. In equities, we prefer Asia over Latin America and EMEA. Within Asia we are overweight China and Korea, neutral on Taiwan and India," he added.
In fact, some of the top performing stock markets this year have included Brazil's Bovespa, which has risen nearly 14 percent year to date. Indonesia's benchmark Jakarta composite, one of the outperformers for 2016, is also up nearly 7 percent.
As U.S. interest rates rise, investors need to look overseas to generate returns. The average emerging market ETF is up about 5 percent so far this year, overtaking even the best performing U.S. treasury ETFs.
"We would absolutely recommend emerging markets and emerging market local debt," Jonathan Xiong, head of fixed income alternatives at Goldman Sachs Asset Management, told CNBC.
He told CNBC's "Street Signs" on Monday, that bond markets in the U.S. and Europe do not offer substantial liquidity premiums, making emerging markets especially appealing.
"EM looks quite attractive. High real rates, positive growth, cheap from a purchasing power parity valuation perspective," he said.
But not everyone shared the same enthusiasm when it came to investing in emerging markets. For one, Jason Ambrose, founder and CEO of Vanda Research told CNBC that if there's one place that's extremely crowded, it's the emerging market trade.
"The real big crowded trade of any asset class … is long EM, particularly in equity markets but also in currencies," he said, adding that emerging markets are still quite sensitive to U.S. dollar strength.
Greenback strength is often seen as a big negative for emerging markets, as not only does it depress the value of their commodities, but also hikes U.S. dollar-denominated debt.
The dollar, however, has retreated since its 14-year peak back in January. Year to date, the greenback has lost 4.3 percent against other currencies.