After downgrading Indian equities recently, Morgan Stanley sees emerging markets 'struggling' for returns in the calendar year 2022. Here's a report on the brokerage's stance on different countries
Equity returns may lose their sheen in the upcoming calendar year as their valuations remain extremely expensive. And returns from the emerging market equities could be the worst hit.
According to the latest analysis by global brokerage Morgan Stanley, emerging markets may ‘struggle’ for returns in the calendar year 2022.
Among other regions, the brokerage maintains an overweight position on European and Japanese equities, remains neutral on EMs, and is underweight on US equities.
“EM valuation is cheaper in absolute and relative terms, as forward price-to-earnings fell from over 16x at the peak in January 2021 to below 13x now, but remains far from being outright cheap. We expect EM equities in aggregate to continue to struggle next year, with only three per cent upside to our December 2022 target,” Morgan Stanley said.
According to the brokerage, EM valuation has cooled off from the January peak but is far from being cheap. Therefore, it expects EM equities in aggregate to continue to struggle next year.
That said, there will be stock-specific opportunities for investors next year and the focus should be on stock selection rather than chasing broad market-wide returns.
Among sectors, Morgan Stanley remains underweight on semiconductors (expressed primarily through Taiwan IT) and China Internet (reflected in the Communication Services GICS sector).
The utilities sector is also among their key underweight, as the brokerage remains cognizant of the elevated regulatory risk (and potential support mechanisms) through the decarbonization process.
Back home, new listings and initial public offers will keep the action alive on Dalal Street over the next few days as secondary markets remain in a consolidation phase.
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