Stocks in emerging markets have had a rough year — but that could change considerably next year, Morgan Stanley said in its Global Strategy Outlook report for 2019.
The projected turnaround for emerging markets is one reason why the investment bank prefers stocks in those economies over that of the U.S. next year. Morgan Stanley said it upgraded emerging market stocks from "underweight" to "overweight" for 2019, while U.S. equities were downgraded to "underweight."
"We think the bear market is mostly complete for EM," the bank said in the report dated Nov. 25, implying that stocks in the emerging markets may soon rise. "We are taking larger relative positions and adding to EM."
Many investors withdrew from emerging markets throughout 2018 and bought more assets in the U.S. due to a spike in bond yields and the appreciating greenback. At the same time, financial troubles in countries such as Turkey and Argentina were escalating — giving investors more reasons to sell their holdings in emerging markets.