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Morgan Stanley’s bold prediction for emerging markets and Asian stocks

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According to Morgan Stanley, the current bear market cycle for emerging and Asian stocks is almost over

To finance the upgrades of Asia’s tech-heavy markets, Morgan Stanley revised its assessments of some of this year’s top performers, demoting Indonesia and Singapore to equal weight and downgrading India to underweight.

According to Morgan Stanley, the current bear market cycle for emerging and Asian stocks is almost over. This is due to the areas’ above-average losses and competitive valuations.

The investment bank’s strategists, including Jonathan Garner, wrote in a note that there is a strong likelihood that a bottom will form in these markets amid “abundant” signs of capitulation. They also stated that they are changing their recommendations for stocks in emerging markets and Asia outside of Japan from equal weight to overweight.

The reevaluation by Jonathan Garner, who correctly forecasted increasing routs in developing and China markets earlier this year, came at a time when EM equities were experiencing a record stretch since their previous top due to a rising currency and China’s harsh COVID regulations.

Jonathan Garner and his colleagues noted, “A lot of wood has been chopped, and it’s time to sow seedlings for the next cycle.”

Accordingly, they recommended that investors “rotate towards proven early-cycle beneficiaries” and upgraded Korea, Taiwan, the semiconductor industry, and the IT hardware sector to “overweight.”

According to the paper, there is a high possibility that a trough will emerge for EM and Asian equities, marking a “compelling” buying opportunity, according to a framework of ten signposts that Morgan Stanley analyses to detect market inflection moments.

Given that both markets have significantly underperformed this year and the semiconductor inventory cycle is about to turn, Morgan Stanley stated that South Korea and Taiwan have the “highest conviction chances in a new cycle.”

The investment bank upgraded many other equities in separate reports, including competitor Taiwanese company AUO Corp. and suppliers LG Display Co. and SK Hynix Inc. of Korea. Its top options are Taiwan Semiconductor Manufacturing Co.

To finance the upgrades of Asia’s tech-heavy markets, Morgan Stanley revised its assessments of some of this year’s top performers, demoting Indonesia and Singapore to equal weight and downgrading India to underweight.

According to Morgan Stanley, the MSCI EM benchmark, which has dropped 26% this year, is expected to rise approximately 12% from now until June.

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