What's going on?
So much for investors going abroad to “find themselves”: Morgan Stanley announced on Wednesday that emerging market (EM) stocks might’ve already peaked for the year.
What does this mean?
EM stocks have been doing well lately: one of the key EM indexes has climbed 80% since March, and it reached an all-time high just last month. That might be because the dollar has been weakening relative to the stocks’ underlying currencies, which makes them worth more to US investors. Or it could be because EM stocks tend to mirror global economic performance, which has been looking more promising ever since the vaccines were announced.
Enter Morgan Stanley with a reality check: it pointed out that the key EM stock index is already higher than the bank expected it to be at the end of this year, which means it probably doesn’t have much further to climb…
Why should I care?
For markets: There’s method behind Morgan’s madness.
There were a host of reasons Morgan Stanley came to this conclusion, but here are three of the biggies. First, the firm pointed out that the US dollar’s value has actually stopped falling relative to other currencies. Second, copper – which is mostly produced in emerging markets – tends to see its price move in line with EM stocks, and that price is currently on the decline. And third, investors have been pouring a serious amount of money into EM funds – a move that’s historically come just before a fall in those regions’ stock prices.
For you personally: India might be your best bet.
If you are going to take a chance on emerging markets, Morgan Stanley thinks India’s the best place to go looking for opportunity (tweet this). The bank reckons the Indian government’s recently announced budget could do a good job of boosting the country’s economy, which should have a positive effect on company earnings and might, in turn, send the country’s stocks up by as much as 10%.