Morgan Stanley has added a number of stocks to its focus lists for Asia and emerging markets, with the new buy-rated targets all from the financial services sector. The Wall Street titan likes China Construction Bank — one of the largest state-owned banks in the country — for its "solid" operating track record and the highest return-on-equity among its large state-owned peers. ROE is used by traders as a gauge of a firm's profitability. Morgan Stanley analyst Richard Xu expects the Chinese bank to maintain a relatively stable net interest margin — the differential between interest received from borrowers and interest paid out to depositors — over the next two years, while also achieving high-single-digit fee income growth and a healthy balance sheet. Hana Financial is Morgan Stanley's top pick within the South Korean financial services sector. "We add exposure to Korean banks, as our analyst, Joon Seok, and his team believe that the industry will continue its outperformance in 1H22," Morgan Stanley's strategists, led by Jonathan Garner, said in a research note on Jan. 10. The U.S. bank noted the rise in interest rates as well as an improvement in the policy environment in South Korea. It has forecast net interest income growth of between 9.5% to 11.5% for the sector this year, with just two banks — Hana Financial and the Industrial Bank of Korea — expected to record higher growth. Morgan Stanley has projected earnings per share growth of 7% for Hana Financial in 2022. Brazilian bank Itau Unibanco is Morgan Stanley's "favorite large-cap bank stock" within the Latin American financials space. The bank enjoys a competitive advantage owing to its "strategic foresight" and "operational capabilities," Morgan Stanley analyst Jorge Kuri said. Itau is also "best positioned" to capitalize on accelerated digital adoption, while its digital wallet — iti — has also emerged as a "strong challenger" to incumbents, Kuri added Morgan Stanley also likes Japanese insurance firm Dai-ichi Life as a beneficiary of rising interest rates and for its improving risk profile and business expansion strategy. Amid a global effort to curb soaring inflation, stocks that are sensitive to interest rates are set to outperform, with the company well positioned to better the country index in the short term, analyst Mia Nagasaka said. Also making the Morgan Stanley list is Japanese bank Resona . Nagasaka says Resona can become a "super-regional" bank, with the market not yet pricing in the bank's potential. Meanwhile, the bank's near-term earnings outlook looks "favorable," while fee income is expected to remain "brisk," she said. Nagasaka expects the bank to be a beneficiary of rising yields and to outperform in the near term.
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Morgan Stanley has added a number of stocks to its focus lists for Asia and emerging markets, with the new buy-rated targets all from the financial services sector.