He has been building positions in his fund based on this theme. He likes Taiwan and South Korea for being among the biggest net importers in the group. “That’s fed straight into the economy, straight into the consumer; it increases discretionary spending,” Attwood says. He’s leaning toward consumer discretionary and staples, and also manufacturing, which will benefit from lower energy costs.

Buck, Buck, Buck
But many investors in EM have turned chicken because of the threat of QE tapering off and the dollar rising. The latter could create the dreaded vicious cycle for those countries that have to pay back too much expensive U.S. dollar-denominated debt.

But Deborah Vélez Medenica, a New York-based portfolio manager at Fred Alger Management’s Alger Emerging Markets fund (AAEMX), says the currency situation and the effect of the rising dollar is more complex than people give it credit for.

“The answer is not always as black and white as commentators would have you think. … The emerging world is not necessarily as tied to the U.S. dollar as it was 20 years ago. Countries have grown up, if you will; they have a lot more [strength] at their central bank and finance ministries. We have a lot more instruments in the world for central bankers to use in the space of currency.”

For the most part, emerging market countries have been reining in their external debt and foreign financing and living a more pious, less leveraged life. The same can’t be said of corporations in these countries, many of which are increasing their leverage. Greiner recently wrote a piece for the site “Seeking Alpha,” noting that the MSCI Emerging Markets Index has a debt-to-equity ratio of 71% now, which is up from 52% a decade ago. If the dollar continues to bulk up, that debt will be harder to refinance and heavier to bear. “You have to really understand company balance sheets now,” he said to Financial Advisor.

Bets In Low Places
Perhaps the most unloved countries in the emerging markets space are Turkey, Russia and Brazil. Turkey suffers from high current account deficits and a perceived inability of its central bank to fight inflation. Russia has suffered for its dependence on declining oil and increasing international sanctions since its interference in Ukraine. Brazil has also suffered from high account deficits, oil dependence and the Petrobras scandal, in which dozens of politicians have been enmeshed in charges of bribes and kickbacks related to the state oil company.

And yet Frederick Jiang and Jonas Krumplys, portfolio managers with the $600 million Ivy Emerging Markets Equity fund (a Waddell & Reed affiliate whose ticker symbol is IPOAX), say they are actually overweight in all the BRIC countries, including Brazil and Russia.

World dynamics being what they are, Brazil and Russia still hold appeal if you’re looking at stocks on the ground, they say. The Ivy fund has even gone to a slight overweight in Russia, partly because inflation has likely peaked at 16.5% and Russian stocks, after being mangled in 2014, looked like a flea market of good bargains as investors headed into the New Year.

“We don’t think Russia is a long-term structural winner,” says Krumplys, “but the economy seems to have bottomed, so psychologically investors are anticipating that six to nine months from now they’ll be doing better.” Also, the country has foreign reserves, not deficits. And despite Brazil’s Petrobras scandal, the president has put in a finance minister trying to do fiscal reform, Krumplys says.

Riad Younes, a portfolio manager at R Squared Capital Management’s $50 million RSQ International Equity Fund (RSQVX), says he’s added to Russia because it’s so cheap it’s a nice short-term tactical trading opportunity. The firm has 1.75% exposure to the country, purely through a country ETF as a tactical macro trade, though he says those seeking individual stocks might feel confident in a growing Russian food retailer like Magnit, which he calls very transparent and well run.