While Morgan Stanley has upgraded its views for stocks in emerging economies, the bank warns that a weaker U.S. could still limit the potential comeback for some of those emerging markets.
"Emerging markets have, both in terms of magnitude and duration, seen a pretty significant correction. And we feel that the conditions are now broadly coming into place that will suggest that these markets begin to outperform, particularly relative to the U.S.," Gokul Laroia, Morgan Stanley's co-head of global equities and co-CEO for Asia Pacific, told CNBC's "Squawk Box" on Tuesday.
"What I am not entirely convinced of is whether or not we see absolute outperformance in the context of a declining U.S., that hasn't really happened too many times before and it's not obvious to me that it can happen," he added.
In a Sunday report, Morgan Stanley upgraded stocks in emerging economies from "underweight" to "overweight" for 2019.
The investment bank said it expects shares in emerging markets to do better than their American counterparts. That's a turnaround for emerging markets, which have fallen out of favor this year due to a spike in U.S. Treasury yields, strengthening greenback and a scale back in the Federal Reserve's balance sheet.