Pros: Emerging markets look cheap, but still risky

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An investor watches the electronic board at a stock exchange hall in Hefei, China.

Emerging markets have fallen apart this year as investors worry about slower growth, China's shaky financial system and weakening commodity prices. While that has left emerging markets looking cheaper than developed markets, the short term remains fraught with risk for investors.

After a 14 percent decline in the MSCI emerging markets index this year, the index is trading on just 10 times forward earnings, below its 10-year average of 11 times and cheaper than the S&P 500 on 14 times, according to recent numbers from JPMorgan Asset Management.

While that may look enticing for value-minded investors, some strategists advise caution.

"We don't see it as a cheap asset class," UBS emerging market strategist Jennifer Delaney told CNBC. "We see it as an expensive asset class with a few pockets of cheapness. And they tend to be very big parts of the index and that's flattering these comparisons."

Indeed, the big BRIC markets are trading at single-digit price-to-earnings multiples, while smaller markets like Mexico and Indonesia are trading in the mid-teens.

Even with cheap valuations, there are still challenges ahead for emerging markets, particularly from the end of the Federal Reserve's quantitative easing, that may make the markets unappealing for many investors.

(Read More: Why China's Economy May Be Heading for a Crash)

Emerging markets were prime beneficiaries of the credit expansion sparked by QE. "It is why they outperformed so dramatically as the credit bubble was expanding," said Richard Bernstein of Bernstein Advisors. And now that it's deflating, there's little reason for them to outperform.

The end of Fed stimulus also comes at a time when two of the big forces that supported emerging markets over the past 10 to 12 years wane. China is no longer growing 10 percent a year and the commodity supercycle is ending.

"It really helped a lot of countries and companies and we're just not going to have that to the same extent over the next 10 years," said Todd Henry, emerging market equity portfolio specialist at T. Rowe Price.

Fitch estimates that 2012-2013 will see the second weakest growth for the BRICs (after 2009) since the Russian crisis in 1998. Weaker China growth, declining credit growth and structural bottlenecks are among the culprits, Fitch said.

(Read More: Why China Delivered Such a Big Miss in Trade Data)

Emerging market companies also will have to adjust to this new normal. "The end of the commodity boom will be a sea change for emerging-market companies," AllianceBernstein's Sammy Suzuki wrote in a blog post. "In the past, they could throw capital at low-return projects and get bailed out by unrelenting economic growth. Those days are gone."

Already emerging market companies have had trouble increasing their earnings, said Delaney of UBS.

"Despite faster-growing GDP than the developed world, the emerging markets have not managed to translate it into superior earnings growth, and in fact, we have had zero earnings growth in the emerging markets in the last two years," she pointed out.

Even developed companies like Oracle and Accenture have struggled amid slowing emerging markets growth and an analyst downgraded IBM on concern growth will falter in the near term.

(Read More: IBM: A Victim of Slowing Emerging Markets Growth)

Simply putting money into an emerging market index fund may no longer be the best approach as emerging markets enter a new phase.

T. Rowe's Henry said it's time to pick companies and countries more selectively.

AllianceBernstein's Suzuki agrees, writing, "The key is to understand how emerging markets have evolved and which countries and companies are more likely to thrive in an environment of lower commodity demand, moderating credit and shifting currency dynamics."

But with the headwinds still blowing against emerging markets performance, investors simply may want to look elsewhere for opportunities in the near term.

"Our view is if you don't have to be in the emerging markets, then don't be," Delaney said.

—By CNBC's Justin Menza. Follow him on Twitter @JustinMenza.