Emerging-Market rally pits Morgan Stanley against Goldman Sachs

Ignore cheap valuations and fade the rally, say strategists

Signs of stabilization in emerging markets since the start of the month are splitting some of Wall Street’s biggest banks on the outlook for the asset class.

Morgan Stanley strategists dubbed the recent recovery a “head fake” and recommended selling on gains in stocks and bonds. Their counterparts at Goldman Sachs Group say that developing nations “now offer relative value” and are keeping their long call on the MSCI Emerging Markets Index of equities. JPMorgan Chase & Co. agrees that valuations on emerging equities now look attractive, but concludes there’s “no hurry to move back” in this quarter.

The divergence reflects uncertainties