Japanese equities to enjoy considerable gains – Morgan Stanley

Global moves in elections, COVID-19 restrictions and energy prices are having ripple effects across markets. How should investors think about these dynamics for Asia and EM equities? Jonathan Garner, chief Asia and Emerging Markets Equity Strategist for Morgan Stanley Research, brings his perspectives.

Time to move to the sidelines for Indian equities

“We continue to prefer Japan to Non-Japan Asia and Emerging Markets. Japan has outperformed Emerging Markets by 500 basis points year to date but remains cheaper to its own recent valuation history than Emerging Markets and with stronger upward earnings revisions. The broad contours of market-friendly macro and micro policy in Japan are likely to continue.”

“We are most constructive on Eastern Europe, Middle East and Africa and in particular Russia, Saudi Arabia and UAE, which are positively leveraged to rising energy prices. We are also warming up to ASEAN, having upgraded Indonesia to overweight alongside our existing overweight on Singapore. ASEAN economies are finally beginning to reopen post-COVID, which is stimulating domestic consumption.”

“We have recommended taking profits on Indian equities after a year of exceptionally strong performance.” 

Within Latin America, we have established a clear preference for Chile versus Brazil on relative economic momentum and export price dynamics.”

“We remain underweight Taiwan and equal weight China. Although valuations have improved in pockets, we expect further earnings downgrades for China and await a clearer pickup in growth and liquidity before turning more constructive.”