Chinese stocks, which make up a third of the MSCIEF index and much more if China-focused companies listed on other markets are included, are up almost 45% from their lows. Taiwanese and South Korean stocks, which have a respective weighting of 13.8% and 11.3% in the MSCIEF, are also up about 18% and 20%.
Morgan Stanley predictions
The economic news of 2023 has its first protagonist: China. The reopening of China after the coronavirus crisis could bring the world economy out of its two-year lethargy. Morgan Stanley analysts have no doubts: emerging markets are on the rise.
“We are sure that we are at the beginning of a bullish cycle in emerging markets”, says Jonathan Garner, Morgan Stanley’s chief strategist for Asia and emerging markets, who expects that, “as in previous cycles, is led by the large markets of North Asia: China, South Korea and Taiwan”.
According to the North American company’s experts, emerging markets appear to be coming out of their “longer and more pronounced” downturn. “In October 2022, the fall of the MSCI Emerging Markets index had exceeded the average fall of the 10 previous bear markets, including the 1997 Asian financial crisis,” they report from Morgan Stanley, while highlighting that the index had fallen to 7% below the low of the 2018 cycle.
“Asian stocks had by then lost more than 40% from their February 2021 high. In the previous 10 cycles, Equities reached highs ranging from 22.7% to 124.8% from bear market lows on an average of about 451 days”, they add.
What are the reasons
Among the reasons given by the US firm for this renewed optimism are the “weakening of the US dollar” and the movement of China “towards a more sustainable coronavirus management policy”.
In parallel, Morgan Stanley highlights that, in the South Korean and Taiwanese markets, where stocks have generally underperformed in 2022, “Valuations are cheap and often bottom out before tech inventory cycles turn”. “These early cycle markets have the best track record of leading rallies in Asian and emerging market equities,” they add.
“Key indicators point to an attractive risk-reward proposition for investors, positioning emerging market equities more favorable than developed market equities over the coming year.” they concluded.
Source: Ambito
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