Emerging Markets: Trade or Trend?

Watch on YouTube ↗  |  January 27, 2026 at 21:25  |  4:31  |  Morgan Stanley
Speakers
Lisa Shalett — Chief Investment Officer, Morgan Stanley Wealth Management

Summary

Lisa Shalett of Morgan Stanley Wealth Management discusses whether emerging market equities can sustain their 2025 outperformance and become a multi-year trend. She cites attractive valuations, narrowing earnings growth gaps, cooling US-China trade tensions, commodity tailwinds, and a new US policy focus on the Americas as supports for EM and Latin America. She also recommends diversifying away from single-stock concentration, taking profits in speculative small/micro-cap equities, and redeploying into large-cap quality, the MAG7, and AI productivity beneficiaries in financials, healthcare, and energy.

  • Emerging market equities outperformed the S&P 500 in 2025, returning over 28% versus 16%.
  • Shalett sees EM valuations at wide discounts and the earnings growth gap with the US narrowing.
  • US-China trade truce and AI-driven commodity demand are cited as EM tailwinds.
  • Copper and aluminum strength benefits Latin American producers; gold and silver rallies help producers in Mexico, Brazil, and Peru.
  • Ample oil supplies are positive for energy importers India and China but less good for producers.
  • She advises taking profits in high-beta, unprofitable small/micro, and speculative equities.
  • She favors redeploying to large-cap quality, MAG7, and AI beneficiaries in financials, healthcare, and energy.
  • The broader message is portfolio diversification beyond US stocks and bonds, with an EM focus.
Ideas
Lisa Shalett Chief Investment Officer, Morgan Stanley Wealth Management 0:47
Emerging markets offer multi-year diversification upside.
Emerging market equities are an attractive multi-year diversification opportunity. Despite strong 2025 returns, valuations remain at historically wide discounts to US equities, while EM earnings growth is forecast at about 12% in 2026 and 11.6% in 2027, narrowing the growth gap. Upside economic surprises have been higher in EM than the US, the US-China trade confrontation is cooling and a truce could last through the US midterms, and AI-infrastructure demand plus commodity tailwinds support many EM economies. After 15 years of US overweight, geopolitics, monetary/fiscal policy, technology shifts, and developed-market debt/deficits require diversification beyond US stocks and bonds; she suggests adding to rest-of-world equities with a focus on emerging markets.
EEM HIGH
Lisa Shalett Chief Investment Officer, Morgan Stanley Wealth Management 2:05
AI infrastructure boosts copper and aluminum demand.
The AI infrastructure buildout—from chips and electronics to manufacturing, power generation, and construction—is boosting demand for industrial metals and commodities, many of which are produced in emerging markets. Copper has gained 35% this year and aluminum is up 13%, creating tailwinds for Latin American producers such as Chile and Argentina.
COPPER Aluminum HIGH
Lisa Shalett Chief Investment Officer, Morgan Stanley Wealth Management 2:15
Latin America benefits from commodity, policy tailwinds.
Latin America is a key beneficiary of the commodity and policy backdrop. AI-driven industrial metals demand supports producers in Chile and Argentina; record rallies in gold, silver, and other precious metals have created windfalls for producers in Mexico, Brazil, and Peru; and the White House's new Monroe Doctrine/national security strategy may promote trade, supply-chain integration, and foreign direct investment that directly benefits Latin America.
Latin America HIGH
Lisa Shalett Chief Investment Officer, Morgan Stanley Wealth Management 2:31
Ample oil helps importers, hurts producers.
Ample oil supplies are a huge positive for energy importers like India and China, lowering energy costs and supporting growth, while the same ample supplies are not as good for oil producers.
INDA FXI HIGH
Lisa Shalett Chief Investment Officer, Morgan Stanley Wealth Management 2:31
Ample oil helps importers, hurts producers.
Ample oil supplies are a huge positive for energy importers like India and China, lowering energy costs and supporting growth, while the same ample supplies are not as good for oil producers.
XLE HIGH
Lisa Shalett Chief Investment Officer, Morgan Stanley Wealth Management 3:39
Redeploy from speculative equities to quality, MAG7.
Investors should take profits in high-beta, unprofitable small/micro-cap, and speculative equities where gains could be vulnerable in 2026, and redeploy to large-cap core and quality stocks including the MAG7 and generative-AI productivity beneficiaries in sectors such as financials, healthcare, and energy.
SPHB Unprofitable small and micro caps Speculative equities HIGH
Lisa Shalett Chief Investment Officer, Morgan Stanley Wealth Management 3:39
Redeploy from speculative equities to quality, MAG7.
Investors should take profits in high-beta, unprofitable small/micro-cap, and speculative equities where gains could be vulnerable in 2026, and redeploy to large-cap core and quality stocks including the MAG7 and generative-AI productivity beneficiaries in sectors such as financials, healthcare, and energy.
Large-cap core and quality stocks MAG7 XLF XLV HIGH
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This Morgan Stanley video, published January 27, 2026, features Lisa Shalett discussing EEM, COPPER, Aluminum, Latin America, INDA, FXI, XLE, SPHB, Unprofitable small and micro caps, Speculative equities, Large-cap core and quality stocks, MAG7, XLF, XLV. 7 trade ideas extracted by AI with direction and confidence scoring.

Speakers: Lisa Shalett  · Tickers: EEM, COPPER, Aluminum, Latin America, INDA, FXI, XLE, SPHB, Unprofitable small and micro caps, Speculative equities, Large-cap core and quality stocks, MAG7, XLF, XLV