Morgan Stanley and BofA Bullish on Emerging Market Carry Trade Prospects

Carry Trade Gains Momentum in Emerging Markets

Early in 2026, carry trade strategies in emerging markets have shown strong momentum, with investors gaining from borrowing low-yield dollars and investing in high-yield currencies. Bloomberg data indicates that the index tracking returns from eight countries has risen 1.3% year-to-date.

Leading Institutions Forecast Continued Growth

Major firms including Morgan Stanley and Bank of America have expressed optimism about further growth potential for this strategy, which gained 18% in 2025. Analysts suggest that U.S. policy trends and global capital flows continue to support the trade.

• Emerging markets maintain favorable interest rate differentials
• Weakness in the dollar creates trading opportunities
• Global capital accelerates into high-yield assets

Opportunities Come with Risks

While the outlook remains positive, investors must remain vigilant about potential risks. Geopolitical tensions, inflation volatility, and policy changes could impact markets. Prudent asset allocation and risk management remain essential.