Pimco, one of the world's largest bond houses, reckons emerging market equities are about to turn a corner.

Geraldine Sundstrom, the firm's head of asset allocation for EMEA at the firm, said she is “beginning to redeploy capital to EM where we can find good value."

Analysis of MSCI EM and ACWI indexes shows price-to-earnings multiples for EM equities are at a 25% discount to developed markets, while dividend yields are slightly higher.

Despite recent weakness in Asian indices, Pimco sees emerging markets steadily improving. 

Commodity prices are bottoming out, China’s decelerating growth is stabilising and the Federal Reserve has tempered its intentions to raise interest rates, strengthening the US dollar.

Sundstrom expects the negative momentum in EM equity earnings to end as commodity prices steady, and investors to return to the equities market for selective EM exposure, especially given the value on offer. 

WisdomTree agrees with Pimco's sentiment, noting a disproportionate sell off of equities with little movement in investment grade EM bonds, even as EM corporate credit downgrades surge to 293 against only 81 upgrades in Q1 2016.

According to the firm “in Q2 the ratio of downgrades to upgrades has already reached the extremes last seen in Q1 2009, with 77 downgrades versus just 13 upgrades,” making the EM bond market increasingly unappealing.

With better prospects in equities, both firms expect investors with interest in EM to shift from bonds to equities. 

“Positioning in emerging markets today to seek yield may mean assessing equity yield anew as, relative to corporate credit, too much bearishness may be priced into equity markets," said WisdomTree’s director of research, Viktor Nossek.