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The MSCI Emerging Markets Index excluding China is up 20% from April lows and is set to break out of a 20-year trading range. The benchmark is up about 7% this year as investors seek alternatives to US assets, while S&P 500 is barely changed.
'Nothing will work better than emerging-market stocks,' Hartnett wrote in a note.
US equities fell out of favor amid President Donald Trump's attempts to shake up global trade earlier this year. They've since recovered most of their losses and there are signs that investors are returning. Fund managers added $20 billion to US stock funds in the past week, the first inflow to the region in more than a month, according to EPFR Global data cited in the BofA note.
Hartnett said he expects US shares to sell off again if the yield on 30-year Treasuries climbs above 5%, from around 4.87%. Still, he said the current yield level 'holds for now.'
--With assistance from Michael Msika.
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