Despite the continued underperformance of emerging market equities, ING Investment Management still sees opportunities in Mexico, India and Turkey. The firm says that these countries are capable of bucking the downward trend in emerging markets due to their sustainable domestic growth, limited macro imbalances and low state intervention. 

“Since the beginning of the year, emerging market equities have underperformed developed equities by 12 per cent. The main reasons are a deteriorating relative growth picture, deepening concerns about the sustainability of high Chinese demand growth, a growing emerging market dependence on portfolio investment flows and the pressure of the weakening yen on Asian currencies and growth," said Maarten-Jan Bakkum, senior emerging market equity strategist at ING IM.

Bakkum believes that although India and Turkey have large current account deficits, they can still provide opportunities for investors in emerging market equities.

ING IM says that the trade and current account deficits in India have started to narrow due to the current weak prices of domestic demand growth and its competitive currency. The government has also kept a fiscal consolidation focus and the firm believes that with inflation coming down, the central bank should be able to continue cutting interest rates. The asset manager suggests that the recent decline in the price of oil is also good news for India, due to its dependence on the fuel source.

Bakkum said that the current account dynamics in Turkey were less favourable than in India, and the sensitivity to the oil price was higher.

"This means that a falling oil price reduces the negative impact of rising energy imports in our scenario of rising domestic demand growth. In the current environment of low investor risk appetite towards emerging market equities, we feel it is becoming increasingly important to be aware of the country sensitivities to the main risks,” he added.

ING IM stated that it wants to keep away from markets which are most sensitive to the Chinese slowdown, those which are feeling the most pressure from the weakening yen and those where the direction is towards increasing macro balances.

Bakkum said he expected emerging markets would continue to struggle for three reasons. "Firstly, we expect Chinese growth to gradually decline to around 5 per cent in three to five years from now. Secondly, there is the increased reliance of emerging market domestic demand on new credit and foreign portfolio investment. And thirdly, the increasing state intervention in emerging market economies, which creates more regulatory risk and reduces the room for private companies to make profits,” he said.