India continues to be Morgan Stanley's preferred emerging market amid challenges as earnings revisions are putting pressure on emerging market equities, especially with the strength of the US dollar, Money Control reported.
Additionally, rising geopolitical risks and the retesting of US 10-year real yields at levels not seen since 2007 are causing valuations to intensify, according to Jonathan Garner, head of emerging markets research at Morgan Stanley.
The economic and earnings growth in India is showing signs of improvement, and the overall macro-stability seems capable of handling the higher real rate environment.
There is a steady increase in domestic flows, and the global dynamics are leading to more foreign direct investment (FDI) and portfolio flows into India, as stated by Garner.
India has consistently outperformed MSCI EM by 45.5 percent in dollar terms from early 2021 to October 2022. Garner expects this trend of outperformance to continue.
Concerns about higher inflation and its impact on monetary policies have eased somewhat following the moderation of the September consumer price index (CPI) to 5 percent and the further slowdown of core CPI to 4.6 percent. The team is forecasting that CPI will remain below 5 percent in October.
In Morgan Stanley's report, Singapore and Poland have been upgraded to Overweight markets. Singapore is known for its defensive approach in emerging markets bear markets and is currently showing strong earnings and profitability trends.
The recent election results in Poland, which indicate a probable opposition coalition government, are viewed as a positive development. This is expected to result in the unlocking of additional European Union (EU) funds and a reduction in the burdens faced by the country's banks.
While the market had some expectations regarding these outcomes, Morgan Stanley believes that the potential upside may not have been fully accounted for.
South Korea and the United Arab Emirates (UAE) have been downgraded to Equal Weight (EW), according to Garner. Although South Korea may experience a semi-cycle recovery in 2024, there are persistent macroeconomic concerns that make a significant upward re-rating in the near term less probable.
The Bank of Korea's relatively hawkish stance, along with high household leverage and a significant energy trade deficit, may lead to challenges including increased domestic inflation and margin headwinds.
According to JPMorgan's James Sullivan, India's economy is predicted to reach $7 trillion by 2030.
Morgan Stanley has moved the UAE to EW (equal weight) in light of ongoing geopolitical uncertainties and its higher cyclicality compared to other Gulf Cooperation Council (GCC) markets, despite the country's strong earnings revisions and profitability.
Nishtha Anushree is Senior Sub-editor at Swarajya. She tweets at @nishthaanushree.
An appeal from Swarajya
At Swarajya, we rely on our readers' support through subscriptions to sustain our media platform. Unlike larger conglomerates, we are unable to relentlessly chase advertising money — our model is largely built on your patronage.
Your support has never been more crucial. We work tirelessly to deliver 10-15 high-quality articles daily, ensuring you receive insightful content from 7 AM to 10 PM.
If you believe India's story has to be articulated in a way it has never been done before without shrugging it off, become a patron (or) subscribe now for ₹̶2̶4̶0̶0̶ ₹1999 and get 12 print issues, unlimited digital access for 1 year, a special India that is Bharat T-shirt (Offer ends soon).
We are counting on you!