Chad Deakins, portfolio manager of the $235 million RidgeWorth International Equity Fund ( STITX), thinks emerging markets will also benefit from the weak currency outlook in developed economies. "We think the currency return to U.S.-based investors is going to be a big part of the total return from emerging markets for those investors," said Deakins. "The developed world will print money which will lower the value of those currencies relative to some of the emerging markets which have lower debt to GDP ratios, and don't need stimulus to have stronger GDP growth and better earnings growth." Meanwhile the U.S. is also stepping up pressure on China to let its currency appreciate, as developed economies' exports are hurting from the "artificially low" value of the Yuan. Asian countries are also likely to encourage a rise in their currencies, as they battle raging inflation in food prices, according to Dailey. ( To listen to Dailey's views on why China will let its currency appreciate click on the audio button below.)
Here is a look at what countries and themes within emerging markets are expected to do well in the near future.
Australia may not be an emerging market but it stands to gain from the boom in China, says Deakins, whose fund has an 8% exposure to Down Under. "The Chinese economy has been one of export but is now turning into one of consumption. They are doing a lot of construction, buying lots of material and they need lots of food. These are two things that Australia has lots of ... they have land and lots of iron ore," he said. While China looks poised to make a soft landing, the portfolio managers say better opportunities lie outside of China, according to Christian Wagner of Longview Capital Management. Wagner tends to focus on markets that have relative strengths vis-a-vis their regional indices. His top picks are India, Chile and Mexico. Deakins, however, warns that investors should avoid focusing on countries alone, as they often have concentrated exposures. "The one big problem is a lot of emerging markets have very narrow markets. A lot of telecom, a lot of materials ... not really diversified domestic exposures. You've got to pick the stocks, not just pick the countries," he said. Which emerging market do you think will outperform in the next year? Vote in our poll.