Wall Street maintains optimistic outlook for emerging markets in 2026

Major Wall Street banks are gearing up for another stellar run in emerging markets, with a weaker dollar and an investment boom in artificial intelligence expected to provide a further boost to the asset class. These bullish factors are expected to drive emerging markets further higher, with local currency bonds delivering a 7% return for investors, the best performance since 2020, and currency indices rising more than 6%. Morgan Stanley strategists noted the possibility of further rate cuts by the Federal Reserve as the U.S. economy slows, which will support a continuation of the market rally. The bank advised clients to maintain long positions in emerging market local currency bonds, which are expected to return around 8% by mid-2026. For emerging market dollar bonds, it forecasts "high single-digit" gains over the next 12 months.