EM Can Ride Out the USD: Global EM Strategist

Research evidence excerpt

EM Can Ride Out the USD: Global EM Strategist

Global Idea

July 7, 2026 03:54 PM GMT

Morgan Stanley & Co. International plc+MGlobal EM Strategist James K Lord

Strategist

EM Can Ride Out the USD James.Lord@morganstanley.comMorgan Stanley & Co. LLC +44 20 7677-3254

Simon Waever

Investors that maintain a diversified funding basket of EUR, USD StrategistSimon.Waever@morganstanley.com +1 212 296-8101

and JPY for long EM FX positions continue to generate positive Ioana Zamfir

returns through the volatility of Fed pricing and the DXY. Risk Strategist

Ioana.Zamfir@morganstanley.com +1 212 761-4012

appetite, not the USD, remains the key variable to consider. Emma C Cerda

Emma.Cerda@morganstanley.com +1 212 761-2344

Key Takeaways Sofia Palacios

A popular view is that EM will suffer from a strong USD and a hawkish Fed. Yet, Sofia.Palacios@morganstanley.com +1 212 761-0428

EM has gained vs DM (2.5% vs G3) as the DXY and US yields rose since May. Morgan Stanley & Co. International plc+

EM vs G3 total returns are driven by risk appetite, not the DXY. We show this Neville Z Mandimika

empirically with data back to 2010. The DXY is statistically insignificant to EM vs Neville.Mandimika@morganstanley.com +44 20 7425-2509

G3 returns. Arnav Gupta

EM FX continues to outperform, delivering 5.1% total returns vs G3 ytd. We Arnav.Gupta@morganstanley.com +44 20 7677-0382

expect the trend to continue, supported by bottom-up fundamentals and global Morgan Stanley Asia Limited+

risk appetite. Gek Teng Khoo

Our favoured markets remain TRY, EGP and HUF within CEEMEA. In Latam we Gek.Teng.Khoo@morganstanley.com +852 3963-0303

stay constructive COP into Aug 7th.

Morgan Stanley India Company Private Limited+

In AXJ, we remain more constructive on the currencies supported by external Nimish M Prabhune