As a result, emerging market indices are now attractively priced at a 25 per cent discount to those of developed nations and, with much negative news now accounted for, look a smart longer term bet, according to Erdinç Benli, head of emerging market equities, . (The asset manager is part of Zurich-listed GAM Group, with a total of SFr116.6 billion of assets under management.)

The MSCI EM Index of emerging markets shows that since the start of January, it has fallen by 2.3 per cent; the MSCI BRIC Index of Brazilian, Chinese, Indian and Russian equities has fared worse, down by 5.1 per cent. The MSCI Eastern Europe Index is up by more than 2.0 per cent, however; the MSCI Far East Index is up slightly. In general, though, benchmarks of emerging markets are in the red. By contrast, the MSCI World Index of developed nations’ indices shows total returns of 22.3 per cent (combining capital growth and reinvested dividends). The difference is stark.

Benli reckons this period of under-performance raises an opportunity.

“The possible tapering of the Fed’s expansionary monetary policy has resulted in strong outflows, but investors' indiscriminate selling provides good entry opportunities for investors with a longer-term perspective,” he said in a note. “Emerging markets are now trading at a discount compared to industrialised nations and have already priced in a lot of the negative news. Patient investors should be compensated with high returns over the long term,” he said.

He argues that the phasing out of Fed quantitative easing (which had encouraged outflows into emerging markets in the past as investors sought yield) will affect emerging market countries in different forms, depending on how they fund public spending and deficits.

“Countries with a strong dependency on foreign capital or a high current account deficit, including South Africa, Turkey and Indonesia, will suffer from lower levels of liquidity. We prefer countries like South Korea, China or Russia, which have solid balance sheets and are less dependent on foreign capital,” Benli said.

He said investors have adopted more realistic expectations on emerging market growth, with predicted growth rates at 7.6 per cent for China and 2.3 per cent for Brazil; these percentages are significantly lower than three years ago.

“Nevertheless, growth rates appear to have moved on from lows in a number of countries, reaching an inflection point, and early economic indicators suggest a recovery in the coming months,” he said.

“After recent price corrections many emerging markets are now trading at a 25 per cent discount to developed nations. Two years ago, emerging market equities were at a 20 per cent premium. Countries such as China, South Korea and Russia are now particularly attractively valued from a historic standpoint,” Benli said.

The longer term outlook remains positive for such countries, he said, citing the example of Chinese carmakers. “In China only 85 out of 1,000 people own have a car, compared to an average of 500-600 in Europe. Internet penetration is only 44 per ent, which opens up a host of investment opportunities in the technology and consumer discretionary sectors. Export-oriented companies are benefiting from currency weakening in India and Indonesia, and we favour the IT service sector, where the international market accounts for 70-80 per cent of sales, he added.