Morgan Stanley prefers Japan & India equities versus overall emerging markets

Foreign brokerage, Morgan Stanley said in a report that it continues to prefer Japan and India versus overall emerging markets (EM) and China this year.

MSCI EM has remained weak at the index level with YTD performance of -6.1 per cent, following subdued absolute and relative performance in 2023.

Within EM markets, the top three performers are Turkey, Egypt, Colombia; in contrast, Korea, Chile, Hong Kong were the bottom three performing markets. Within EM sectors, all sectors have delivered negative absolute returns YTD.

Materials, Real Estate and Consumer Discretionary are the worst three performers while Energy, Utilities and Financials are the best three, the report said.

Japan has made a strong start to 2024 with TOPIX gaining +5.3 per cent YTD (in JPY terms or +0.2 per cent in US$) as of January 18.

Strong nominal GDP growth and positive earnings revisions as well as a structural trend to rising ROE have been driving the outperformance versus RoW. Japan remains a key OW market at the global equity level with a TOPIX base-case target price of 2600 (+4 per cent upside) and a rising likelihood of our bull case of 2800 (+12 per cent upside) coming into play as fund re-allocations to Japan have been high year to date driving multiple expansion.

Japan has outperformed the overall EM year to date to 18th January (+5.3 per cent in JPY or 0.2 per cent in US$ versus -6.1 per cent for MSCI EM in US$). Bottom six worst performing markets YTD include: Korea, Chile, Hong Kong, South Africa, Poland, and China. Top six best performing markets are Turkey, Egypt, Colombia, Hungary, Greece, and Saudi Arabia, the report said.