Morgan Stanley's Under-the-Radar Signals: A New Growth Cycle in Emerging Markets and Cyclical Reacceleration

The global economy is on the cusp of a transformative phase, driven by a confluence of under-the-radar signals that suggest a cyclical reacceleration and a shift toward emerging market rotation. Morgan Stanley's latest research underscores a nuanced but compelling narrative: while headline risks persist, the alignment of industrial, financial, and technological indicators points to a robust growth trajectory for 2026. This analysis dissects these signals, their implications, and the strategic opportunities they present for investors.

Industrial and Commodity Trends: The Copper Conundrum

One of the most telling signals is the surge in copper prices, which rose 44% in 2025 alone. As Andrew Sheets notes, copper is a barometer of global industrial and manufacturing activity. This sharp increase reflects heightened demand from green infrastructure projects and the energy transition, particularly in emerging markets. For instance, global investment in renewable energy and clean technologies is projected to reach $3.3 trillion in 2025, with two-thirds allocated to renewables, power grids, and energy storage. Such trends are likely to sustain base metal prices in 2026, supported by firm demand from EVs, solar panels, and wind turbines.

Equity Market Dynamics: Korean Equities and Financial Stocks

Emerging markets are also gaining traction, with the Korea Composite Stock Price Index surging 75% in 2025-a rare outperformance that signals global economic optimism. This momentum is not isolated. Financial stocks in the U.S. and Europe have outperformed broader markets, with the U.S. financial sector rising 14% year-on-year. Vishy Tirupattur, Morgan Stanley's Chief Fixed Income Strategist, interprets this as evidence of a strengthening cyclical environment, where tighter monetary policy and improved credit conditions are beginning to normalize.

AI-Driven Capital Expenditures: A New Infrastructure Paradigm

The AI revolution is reshaping capital allocation, with Morgan Stanley projecting $3 trillion in AI-related infrastructure spending by 2026. Less than 20% of this capital has been deployed so far, creating a significant tailwind for sectors like data centers, power grids, and cloud computing. To fund this expansion, the firm anticipates a surge in investment-grade asset-backed securities (ABS) tied to data center assets. This shift not only addresses financing gaps but also introduces new risks, as debt issuance could widen credit spreads in investment-grade markets.

Geopolitical Resilience and Policy Sequencing

Morgan Stanley's analysis also highlights the market's muted reaction to geopolitical events, such as developments in Venezuela, as a sign of growing confidence in global supply resilience. This resilience is further bolstered by a shift in U.S. policy sequencing, where fiscal and monetary policies are increasingly aligned to support growth. However, the firm cautions that near-term volatility remains a risk, particularly as investors debate whether 2026 will reflect an early or late cycle phase.

Strategic Implications for Investors

For investors, the key lies in balancing optimism with caution. Morgan Stanley advises favoring large-cap quality equities and active stock selection, particularly in companies with significant AI capex exposure. In emerging markets, the firm emphasizes infrastructure and industrial sectors, where demand from green energy and manufacturing is expected to drive cyclical reacceleration. Meanwhile, gold and stable commodities like copper are positioned to benefit from central bank purchases and evolving monetary policy.

Conclusion

The under-the-radar signals identified by Morgan Stanley-from copper prices to AI financing-paint a picture of a global economy poised for reacceleration. While challenges remain, the alignment of industrial, financial, and technological trends suggests that emerging markets and cyclical sectors will play a pivotal role in shaping the 2026 growth narrative. For investors, the task is to navigate this transition with agility, leveraging these signals to position portfolios for both resilience and reward.