Morgan Stanley’s 5 big investment calls for the rest of 2026

Markets always give investors plenty of reasons to stay on the sidelines. Often the key is knowing when to look through the noise, stay invested, and enjoy the ride. 

For what it's worth, Morgan Stanley's latest Asset Allocation Insights research note suggests the team is happy to saddle up and hold the reins tight. Yippee Ki-Yay!

Geopolitical tensions, oil prices whipping around, tariffs, and uncertainty surrounding US monetary policy have all increased volatility this year. But Morgan Stanley argues these are primarily risks to short-term returns rather than reasons to abandon equities.

Instead, the investment team believes resilient earnings and an enormous global capital expenditure cycle, led by artificial intelligence but increasingly spreading into energy and industrial infrastructure, can support markets into 2027.

That doesn't mean simply buying the winners of the past few years. Morgan Stanley believes market leadership is broadening, creating opportunities across US cyclicals, AI infrastructure, Japan, Korea and selected commodities. At the same time, it has moved close to a maximum underweight position in Australian equities.

Here are five of its biggest investment calls.

1. Stay overweight equities, with the US still number one

Morgan Stanley's overarching portfolio call is straightforward - own equities over credit and favour international markets over Australia.

The US remains its preferred equity market, supported by resilient earnings, positive operating leverage, pro-cyclical policy and the potential productivity benefits of AI. However, Morgan Stanley believes the sources of those returns are beginning to change.

One of the most significant momentum sell-offs in recent history has accelerated a rotation away from some of the market's previous leaders. 

Morgan Stanley believes the transition from an early to mid-cycle environment should increasingly favour quality businesses with stable earnings, strong margins and free cash flow.

It is overweight Financials, Industrials, Consumer Discretionary, Technology and Communication Services, while underweight Staples and Real Estate. There is also evidence that earnings leadership is broadening, with median Russell 3000 earnings growth running at around 14% and 2027 earnings expectations favouring the S&P 493 over the Magnificent Seven.

Morgan Stanley's mid-2027 target for the S&P 500 remains 8,300.

2. The next AI winners could be outside semiconductors

Morgan Stanley sees no sign that the AI investment boom is running out of steam. Instead, it argues the cycle is "accelerating, not peaking", with its analysts lifting estimates for hyperscaler capital expenditure to US$1.2 trillion in 2027 and US$1.4 trillion in 2028.

That spending is expected to help increase available compute capacity fourfold, from approximately 30GW in 2025 to 120GW by 2028.

The investment opportunity is also becoming broader than semiconductors. Morgan Stanley currently prefers hyperscalers over semis, while highlighting opportunities across compute manufacturing, energy security and the physical infrastructure required to support the AI build-out.

In particular, power has emerged as one of the most important constraints.

"Power and 'time-to-power' are the key critical bottlenecks - and the highest-conviction investment opportunity."

With data centres taking as long as three years to move from groundbreaking to operation, Morgan Stanley favours a "global barbell" of AI compute infrastructure and energy security assets. 

The implication is that the next leg of the AI trade could increasingly be captured by companies supplying the power, equipment and infrastructure behind the technology.

3. Look to Japan and Korea for opportunities outside the US

While the US remains Morgan Stanley's preferred market, it sees opportunities elsewhere, particularly in parts of Asia.

Japan remains equal-weight and the preferred region among equal-weight exposures, with Morgan Stanley arguing that the country's structural investment case remains intact. Corporate reform, reflation, improving returns on equity and AI-related capital expenditure provide a supportive backdrop, while the firm sees opportunities among AI-related "picks and shovels" and selective cyclical value stocks as the benefits of investment broaden through the economy.

Morgan Stanley has also recently upgraded Korea within its Asian and emerging-market allocation, citing a step-change in technology earnings, structural growth drivers, cleaner investor positioning and compelling valuations.

Despite a sharp increase in earnings expectations, the KOSPI was trading at around six times 12-month forward earnings, suggesting investors are pricing in a significant reversal of the memory-driven earnings upswing.

Europe remains equal-weight, while emerging markets overall remain Morgan Stanley's least-preferred equity region due to weaker macro and earnings narratives, geopolitical risks and market concentration.

4. Underweight Australia, but don't abandon resources

Morgan Stanley's view on Australia is considerably less enthusiastic, with the firm moving to a near-maximum underweight Australian equities relative to international markets.

The concern is that the domestic economy is moving into a stagflationary phase characterised by slowing growth and stubborn inflation. 

Morgan Stanley forecasts GDP growth slowing to just 1.2% year-on-year by the December quarter, while house prices are expected to decline and labour market conditions gradually soften. At the same time, underlying inflation remains above the RBA's target, limiting the central bank's ability to provide relief.

For Australian equities, that combination creates rising earnings risks across banks, consumer discretionary companies and housing-related exposures. Valuations have eased but remain above their long-term average, while Morgan Stanley describes the outlook as a difficult combination of "sticky" costs, weak volumes, margin pressure and higher discount rates.

Resources are an important exception, with Morgan Stanley continuing to favour Resources and capex-exposed Industrials over domestic cyclicals. 

That positioning is consistent with its broader view that investment spending, rather than consumption, will be the more important driver of the next phase of the economic cycle.

5. Copper tops the commodity list

Morgan Stanley's preference for capital expenditure also feeds directly into its commodity views, with copper its top pick.

Constrained supply provides the foundation for the bullish view, while additional Chinese grid investment could provide another source of demand. Morgan Stanley also remains positive on uranium, citing tighter supply, potential upside from spot buying and an expected increase in contracting activity.

Gold remains another favoured exposure through the second half of 2026 and into 2027. Stabilising central bank demand should provide support, with renewed ETF buying representing potential upside.

Morgan Stanley is considerably less enthusiastic about iron ore, where weaker steel production, strong supply and falling cost curves create a more difficult outlook. It also expects aluminium to move into a significant surplus in 2027.

That selectivity extends across the broader portfolio. Morgan Stanley remains overweight alternatives, favouring infrastructure, hedge funds, asset-backed lending, private market secondaries and selected buyouts. Within fixed income, it prefers government bonds to credit and Australian bonds over international bonds.

The thread connecting these calls is capital expenditure. Morgan Stanley believes the AI boom is evolving into a much broader investment cycle encompassing power, infrastructure, industrial equipment and commodities. 

For investors, that means staying exposed to equities while looking beyond yesterday's winners to the companies and markets supplying the physical infrastructure required for the next stage of growth.