Oil and Emerging Markets Replace AI Leaders in Morgan Stanley Strategy
The explosive rally in artificial intelligence stocks has created enormous wealth - and, increasingly, concentration risk. At Morgan Stanley Investment Management, one senior strategist is preparing for what could happen if that momentum cools.
Key takeaways
- Morgan Stanley Investment Management is trimming exposure to crowded AI trades and shifting toward more defensive emerging-market positions.
- Health care, commodities and oil are favored due to lower correlation with US tech.
- India, Mexico, Brazil and Eastern Europe are overweight, supported by cheaper valuations and domestic growth.
- Emerging markets trade at a steep discount to the US, offering upside if AI momentum cools.
Jitania Kandhari, who oversees macro and thematic research for emerging markets while serving as Deputy CIO in the firm’s multi-asset division, is quietly reshaping portfolios. Instead of chasing AI infrastructure names and chip supply chains that move in lockstep with US tech giants, she is steering capital toward areas driven by domestic demand, tangible assets, and structural reforms.
Turning Away From the Obvious Winners
Rather than loading up on companies whose fortunes hinge on US cloud spending, the strategy now emphasizes sectors that historically behave differently during tech drawdowns. Health care features prominently, alongside commodities.
Energy – especially oil – is viewed as mispriced relative to broader equity enthusiasm. In a world where investors have crowded into AI narratives, traditional resource plays have lagged, creating what Kandhari sees as asymmetric opportunity.
That does not mean abandoning artificial intelligence entirely. The distinction lies in geography and revenue sources. Firms such as Alibaba Group Holding are attractive not because of exposure to US hyperscalers, but because they cater to domestic AI integration within China’s own economy. This internal demand dynamic may offer insulation if global trade frictions resurface.
A Different Map for the 2020s
Kandhari’s allocation map does not mirror the prior decade’s US-centric dominance. Instead, she is overweight India, Mexico, Brazil and parts of Eastern Europe – regions where earnings growth is increasingly tied to internal consumption, manufacturing shifts, and reform momentum.
Her argument is valuation-driven as much as thematic. Emerging-market equities trade at a steep discount – close to 30% – compared with US counterparts. After years of underperformance, even modest capital rotation away from mega-cap US technology could meaningfully lift EM benchmarks.
Macro Tailwinds Matter
The broader backdrop reinforces the case. A more accommodative US policy environment – including rate cuts and the possibility of a softer dollar – tends to ease financial conditions across developing economies. Historically, such phases support capital inflows and stabilize currencies, both critical for equity performance.
At the same time, Kandhari sees cracks forming in the AI revenue story. Corporate adoption is strong, but monetization has not always matched projections. Expectations embedded in certain valuations may prove ambitious if spending discipline tightens or returns take longer to materialize.
Positioning for What Comes After the Hype
The overarching theme is diversification away from crowded trades. Rather than betting that AI enthusiasm continues uninterrupted, the strategy prepares for a scenario in which leadership broadens.
For Morgan Stanley’s emerging-market portfolios, that means leaning into discounted regions, commodity exposure, and domestically driven technology stories – a combination designed not to oppose the AI revolution, but to withstand it if sentiment shifts.
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Alexander Zdravkov is a person who always looks for the logic behind things. He has more than 3 years of experience in the crypto space, where he skillfully identifies new trends in the world of digital currencies. Whether providing in-depth analysis or daily reports on all topics, his deep understanding and enthusiasm for what he does make him a valuable member of the team.
