Emerging markets are looking very cheap and the beaten-down prices could be a solid base for future returns, but funds should be prepared for more short-term losses if they take the plunge.
Stocks, bonds and currencies across the developing world are suffering a rout on a scale not seen for years. Asset price valuations look dirt cheap - versus emerging markets' own history and also possibly against their future prospects.
But on the downside, the impending rollback in Fed money printing will almost certainly drive up U.S. bond yields, the higher global borrowing costs seeping through to hit economic growth across the developing world.
And falls in currencies such as Indian rupee and Brazilian real are a worry, eroding foreign investors' returns from local stocks and bonds.
Yet, even as such fears feed the selling momentum, cheap valuations are starting to catch the eye of some investors who are looking at the sector from the perspective of a few months or even a few years down the road.
JPMorgan Asset Management, for instance, says it is snapping up cheap emerging market shares to top up its funds.
"As bad as the newsflow is in emerging markets, we would highlight that it is not the grounds for a crisis. However valuations are at crisis levels," says George Iwanicki, a strategist at JPMorgan Asset Management in New York.
Iwanicki argues that historically, buying emerging equities when they trade at 1.5 times book value or less has delivered positive returns. The sector is now trading 1.45 times.
That compares with a current price-to-book ratio for the U.S. benchmark S&P 500 .SPX index of 2.35 and 1.29 for the pan-Europe Euro STOXX 50 .STOXX50E.
Compared to their own 10-year history, emerging equities are 30-50 percent cheaper on a price-book basis, and valuations have more than halved from their 2007 peaks, data shows.
"Valuations have fallen to levels that historically have almost always provided a positive return," Iwanicki said.
Similar analysis from HSBC shows that when emerging equities trade at current valuation levels of around 10 times forward earnings, a subsequent market rebound has tended to deliver returns of around 60 percent in the following year.