The fact that there could be bigger trouble ahead for developed economies is currently the main hypothesis about next year 2019 according to a growing number of market analysts.
Weaker trends here may indicate better trends over there, underlined Morgan Stanley (MS) whose research team emphasized in its Global Strategy Outlook report for 2019 that after a rough 2018 for stocks in Emerging Markets (EM), a turnaround could be just about to start.
As a result, MS has upgraded EM stocks from “underweight” to “overweight” for 2019, while it has downgraded US equities to “underweight”. Thanks to a rise in bond yields and very good figures in economic growth, US stock market accumulated much foreign capital over the last year, leading DJIA and S&P500 to unprecedented tops.
Since then however, mostly the rate hikes policy of the Federal Reserve (Fed) and the ongoing uncertainty around President Donald Trump’s trade feud with China and the European Union (EU) have led global markets into correction territory.
In the meantime, EM markets have gone into a contrarian move against developed markets with Chinese index going south, if not halving, since 2014, and political tensions drove Turkish and Argentinean currencies into hot waters. Now that the MSCI Emerging Markets Index has dropped by 16 percent YTD, MS expects it to rise 8 percent by December 2019, twice as much as the 4 percent forecast for both the S&P500 and MSCI Europe Index.
“We think the bear market is mostly complete for EM. (…) We are taking larger relative positions and adding to EM,” reads the Morgan Stanley report, putting its “overweight” focus on “value stocks” from Brazil, India, Indonesia, Peru, Poland and Thailand.