Why Central and Eastern Europe is back in focus
Paul Psaila, who helps run Morgan Stanley's global emerging market strategies, sees a sweet spot forming in Central and Eastern Europe. He points to improved ties with the European Union after political strains that had previously led to some funding being stopped or delayed.
He also highlighted that companies from Western Europe and Asia are fueling a growing slate of projects in the region. On Hungary, Psaila noted that moving toward euro adoption could lower interest rates and borrowing costs, potentially reinforcing investment and growth.
How the fund is positioned
Morgan Stanley's Sustainable Emerging Markets Equity Fund has gained 18% this year, according to Bloomberg data, and it has topped 84% of rivals over the past three years. The portfolio's biggest single-country overweight is Poland.
While the largest positions are Taiwan Semiconductor Manufacturing Co. Ltd., Samsung Electronics Co Ltd. and SK Hynix Inc., the fund's allocations to Taiwan and South Korea are aligned with its benchmark, per its fact sheet. It holds a lighter stake in China than the index and a heavier one in Poland, South Africa, Mexico and Hungary. These weights are for the MS Sustainable Emerging Markets Equity Fund as of Sept. 30.
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The AI angle and market backdrop
Central and Eastern Europe's equity rally strengthens the case. Year to date, Hungary's BUX Index and Poland's WIG 20 are both up more than 30%, beating the S&P 500's 13% rise and the Stoxx Europe 600's 9% gain.
Psaila said, "We are still overweight to the AI trade in the context of emerging markets," describing the exposure as the "picks and shovels" that supply the hardware and tech behind AI. The team remains focused on those suppliers while watching distinct AI ecosystems take shape in the US and in China. He is also moderately constructive on South African stocks, citing "positive structural reforms and you have positive terms of trade, plus I think good management," and summed up the stance as "mildly bullish."
What it means for your portfolio
In plain English: this is a barbell. One side is Central and Eastern Europe, where improving EU relations and new corporate projects could support growth. The other is AI, where the fund prefers the suppliers that sell into the buildout. If your EM exposure is all about headline tech winners, this is a reminder to look at where capital is flowing on the ground - and which markets are already delivering returns.
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