Morgan Stanley reveals its outlook for Asian stocks, says one major index is set to soar 11% in 2024

Published Mon, Nov 13 20237:05 PM EST

Morgan Stanley has revealed a bullish call on Japanese stocks for 2024. The investment bank expects the TOPIX, Japan's key stock index, to rise 11% to 2,600 in 2024. The Wall Street bank raised its price target due to a strong earnings-per-share growth forecast of 10% in 2024 and 8% in 2025. The yen is also expected to strengthen against the U.S. dollar, which would boost Japanese exporters, the bank said. The index is up by about 25% this year. Investors can gain exposure to the index through ETFs such as the iShares Core TOPIX ETF and Amundi Japan TOPIX II UCITS ETF . 1475.T-JP YTD line "We see TOPIX moving further into its secular bull market," said Morgan Stanley strategists led by Jonathan F. Garner in a note to clients on Nov. 12. "Sustained reflation and rising productivity at the macro level — working in combination with improved corporate governance at the micro level — will likely drive further improvement in corporate profitability in Japan." After years of stagnation, Japan's economy and stock market appear to be gaining momentum as a number of fund managers turn bullish. Tom Stevenson, investment director at Fidelity International, told CNBC Pro last month that the Asian country has the best combination of earnings growth, cheap valuations and policy support . China and emerging markets However, Morgan Stanley remains cautious on other Asian markets going into the first half of 2024. The bank's strategists lowered their target for the MSCI Emerging Markets Index to 1,000, implying a modest 4% upside from current levels. They cited slowing global growth, higher interest rates, and currency weakness versus the U.S. dollar as headwinds for emerging markets. Specifically on China, the bank said, "the slowing global growth backdrop, higher interest expense burdens and further weakness in key [emerging market] exchange rates against the USD-denominated index" will be key drags. The investment bank is also below consensus, with a GDP growth forecast of only 4.2% for China in 2024. India In contrast, the outlook is far more favorable for Indian equities, accodin . Morgan Stanley expects strong nominal GDP growth above 11% annually in 2024 and 2025 thanks to "young demographic and geopolitical alignment," which will drive earnings higher. But the bank has cautioned that there are some risks that could derail the positive trajectory. According to Morgan Stanley's analysis, India screens as moderately expensive on valuations, trading at nearly one standard deviation above historical average. This means that if growth fails to meet expectations, Indian equities could be vulnerable to a downward re-rating. Additionally, the Wall Street bank said India faces domestic policy uncertainty heading into national elections in late 2024. The bank's strategists predict markets will initially rally into the election hoping for a returned majority, but electoral volatility and potential for surprise outcomes could weigh on Indian equities. — CNBC's Michael Bloom and Penny Chen contributed to this report.