Bottom is near for emerging market stocks Morgan Stanley

Bottom is Near for Emerging Market Stocks, Morgan Stanley

Bottom is near for emerging market stocks, Morgan Stanley

Emerging markets and Asian equities are nearing the end of their current bear market cycle, Morgan Stanley said, raising its view of the region with above-than-average losses and attractive valuations.

There is a strong chance to form a bottom in this market amid “many” signs of capitulation, investment bank strategists, including Jonathan Garner, wrote in a note on Tuesday, adding that they are revising recommendations for emerging markets and Asia, with the exclusion of Japanese equities from equal weight to overweight.

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The re-rating by Garner, which correctly predicted a deepening in emerging markets and China earlier this year, comes as emerging market stocks posted record stretches from recent highs amid a rising dollar and tighter COVID restrictions in China.

“A lot of the wood has been cut down” and “it’s time to plant the seeds for the next cycle,” write Garner and his colleagues. Investors should “target proven early-cycle beneficiaries,” they added, also boosting Korea’s semiconductor hardware and technology sector, Taiwan, to become overweight.

The 10-pointer framework that Morgan Stanley uses to identify market turning points now shows a high probability of bottoming for EM and Asian stocks, signaling a “convincing” buying opportunity, according to the release.

Morgan Stanley said South Korea and Taiwan are the “biggest opportunities for confidence in the new cycle” as both markets have underperformed significantly this year and a cyclical turning point for semiconductor stocks is imminent.

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In a separate report, investment banks also added shares including Korean chipmaker SK Hynix Inc., a supplier to Apple Inc. LG Display Co. and Taiwanese competitor AUO Corp. Taiwan Semiconductor Manufacturing Co. are one of their top choices.

To fund improvements in Asia’s tech-heavy market, Morgan Stanley downgraded some of the year’s best players, downgrading India to underweight and Indonesia and Singapore to equal weight.

Morgan Stanley said it expects benchmark MSCI EM, which is down 26% this year, to rise about 12% through June.

Bottom is near for emerging market stocks, Morgan Stanley