Eastern Europe seen as AI trade diversifier for emerging-market investors
Central and Eastern Europe is drawing renewed attention in emerging markets as investors look beyond the artificial intelligence trade for fresh opportunities. Morgan Stanley sees the region as particularly attractive, citing stronger ties with the European Union and a growing pipeline of investment.
Highlights
- Morgan Stanley's Paul Psaila identifies Central and Eastern Europe, especially Poland and Hungary, as top diversification opportunities for emerging-market investors beyond AI exposure.
- Poland is the largest overweight position in the $774 million Sustainable Emerging Markets Equity Fund managed by Psaila's team.
- Improving EU relations and increasing investment flows are supporting Central and Eastern Europe's investment case within broader emerging-market allocations.
Investment case for central Europe
As reported by Bloomberg, Morgan Stanley's Paul Psaila says Central and Eastern Europe offers one of the most attractive opportunities across emerging markets for investors seeking diversification away from the artificial intelligence theme.Psaila, who co-manages Morgan Stanley's global emerging-market strategies, including the $774 million Sustainable Emerging Markets Equity Fund, says he is very bullish on central Europe. He highlights Poland and Hungary as especially compelling markets, and says Poland is the fund's largest overweight position.
Regional tailwinds and market relevance
Support for the region is coming from improving relations with the European Union and a strengthening pipeline of investment, factors that are helping underpin the case for Central and Eastern Europe within broader emerging-market allocations.The view points to a potential rotation theme for investors who have been heavily exposed to artificial intelligence-linked trades and are now assessing other areas of the market for diversification. In that context, Eastern Europe is being presented as a region with both policy support and capital inflow potential.
Our earlier article on Mario Draghi’s warning about tight monetary policy looked at the risk that keeping interest rates above growth for too long could worsen public debt dynamics and pressure central banks, even as inflation remains the priority. We also noted his argument that policymakers should avoid unnecessarily high rate paths that raise the cost of capital and suppress productive investment, alongside calls for EU-level measures such as market integration and targeted funding to support innovation and long-term growth.
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