Investment is at times a very emotional subject, particularly when you are on the wrong side of a theme, major market move or an individual trade. 
As we have re-learned in the last few days, there's no subject more passion-inducing than Emerging Markets. In two lengthy spells this century, namely during the NICE (Non-Inflationary Consistently Expansionary) years of the last decade and the start of this decade, wealth managers and asset allocators were often vilified for not holding mammoth parts of their portfolios in emerging markets and resources, as the EMs were going to change the world, China was the future and that's where companies would make money and investors their returns.
Just a few years later in the midst of an increasingly turbulent summer, the absolute inverse is now perceived as wisdom. Emerging markets are hated, China is finished and resources are an arcane investment choice.
Performance of sector and indices since May 2013
Source: FE Analytics
After three barren years from the emerging market equity index, emerging market bonds and a disastrous three years for anything with even a sniff of resources, the hatred is becoming firmly entrenched, akin we believe to the hysterical over-reaction to Japanese and European markets in 2012, following which major recoveries ensued.
Performance of sectors since November 2012
Source: FE Analytics
Whilst I would stop short of suggesting that the fortunes of such assets will arrest their decline and change today or tomorrow, I will aim to provide some of the counterbalance to the heavy weight of commentary against emerging markets assets, which has grown in the last few days.
In fairness to the growing throngs of emerging market bears, they can make a more compelling case for bad-mouthing the emerging world over the last few days, following the 'mishandling' of the Chinese decision to devalue the yuan.
Our view is that rather than losing control, the Chinese failed in any PR attempt to explain their reasoning.
Certainly the Dragon's power has waned in recent months and years, but we see this as much less a terrified move to stave off economic Armageddon and far more a reaction to the IMF's call for greater flexibility of China's currency, before any inclusion in 'prestigious' global 'drawing rights'.
Why the Chinese would listen to the clowns at the IMF is beyond me, but that's their choice.
Our view on China remains that the government have a tough job on their hands to rebalance their economy, but so far they have done a decent job and we expect them to continue to do so. The fashionable and ubiquitous predictions that China is about to implode, which adorn the Western Press on a daily basis, might have to wait to be fulfilled.
Of course China is not the whole of the emerging market world, despite its obvious omnipotence, and elsewhere there are signs of a significant slowdown in Q2.
This probably isn't really that surprising, given the sluggish growth rate seen in developed world and China's ongoing reform process. However, we believe that people are generally too cautious on Asia and growth (both quality and quantity) will improve as we progress through this year and next.
Clearly there are plenty of 'Asian Financial Crisis II' theories gaining significant traction in markets, the likelihood of which is up for debate.
There is certainly the potential for further emerging market currency weakness ahead IF the Fed decides to raise rates in the coming months, although the chances of that happening have receded in recent days.
However, the chances of a total collapse of Asian economies, reflected in their currencies, seems unlikely to us, as the economies have developed massively in the last twenty years, debt levels are not ludicrous and, from an investment perspective, regional equity valuations are cheap.
If we were to see either a failure of the Chinese economy or 'Asian Financial Crisis II' now, it would surely be the most widely predicted crisis in history.
My comments today have been restricted to Asia, which is the subject we know best at Psigma, and where our clients' emerging market allocations are focussed. However, the pendulum is swinging for all emerging market assets from the risk of owning them to the risk of having none or majorly underweight allocations.
Global investor positioning has become extreme and we read piece after piece of strategy proclaiming how short/ underweight investors should be in anything linked to the emerging market complex.
If emerging market assets were expensive then I could certainly understand how that view would be appropriate, but to be totally clear we do not see that as the case in many markets.
While it is fashionable to focus on the theories, focussing on the fundamentals leads one to discover that Asian equities trade on price to assets valuations (P/B) rarely seen in history and markets like the Hang Seng trade on 7.9 times forward price to earnings, a 50 per cent discount to the US market.
Performance of indices over 5yrs
Source: FE Analytics
Of course it would be utterly naïve to suggest that underperformance will not persist, but it should be clear that emerging market assets have had a lot of pain already.
It might get worse before it gets better, but I would suggest on a three year view the chances of Asian equities and currencies being higher are good.
Tom Becket is chief investment officer at Psigma. The views expressed above are his own.
