Global investment bank Morgan Stanley has downgraded India to ‘underweight’ following its outperformance to other emerging market peers year-to-date. Instead, the investment bank has turned overweight on South Korea and Taiwan.
The recent sharp correction in some of the major emerging markets has turned the risk-reward favourable, prompting Morgan Stanley to turn positive on emerging market equities in Asia.
Since its peak in February 2021, the MSCI EM index has declined 40%, and this fall is greater than the average of the declines seen in the 10 prior bear market cycles, said Morgan Stanley in a report.
Moving overweight on emerging market equities, Morgan Stanley has set the target for the MSCI EM index at 1,000 points.
Year-to-date, benchmark indices in Japan, China, Hong Kong, Taiwan, and South Korea have declined 5-25%, whereas the Sensex and Nifty 50 are down by only 0.1%.
The investment bank is also bullish on China but retained its ‘equal weight’ stance, as it awaits clarity on the future policy trajectory at a time when the growth outlook for the world’s second-largest economy remains clouded.
On the sectoral front, Morgan Stanley is bullish on the semiconductor industry in South Korea and Taiwan and is overweight on the financial sector in India.