Morgan Stanley Adjusts Ratings on Emerging Markets and Asia-Pacific Markets, Downgrades China to Neutral
Morgan Stanley strategists have stated in a recent report that China is no longer suitable for overweight, prompting the bank to adjust its ratings on several emerging markets and Asia-Pacific markets. The investment bank has downgraded China to neutral from overweight and also downgraded Australia to underweight.
The decision to revisit ratings came after the emerging market EEM rebounded 25 percent from its trough in late October. According to analysts, China’s domestic demand has not convincingly recovered in the post-epidemic environment. The core inflation rate is close to zero, and the financing burden of local governments is proving difficult to solve. In addition, the United States is expected to impose more regulations on technology this month.
The bank’s analysts have stated that if policy implementation becomes more aggressive and solutions to these structural issues start to fall into place, a more optimistic view on China cannot be ruled out.
The iShares MSCI China ETF (MCHI) has risen 35% from its lows in late October but has remained largely flat this year, down 15% since January 27.
Morgan Stanley has also downgraded Taiwan from overweight to neutral. The bank cites valuations returning to mid-cycle levels and market sentiment no longer being depressed as reasons for the downgrade. However, the analysts still view the Taiwan market as a structurally bullish scenario and state they are on the sidelines after its recent notable outperformance.
In contrast, India has been upgraded to overweight from neutral and now ranks first out of 28 different markets. Morgan Stanley believes that India’s structural reforms are paying off, unlocking previously stagnant growth opportunities.
It is worth noting that this article has been translated from MarketWatch, which is operated by Dow Jones. While MarketWatch is independent of Dow Jones Newswires and The Wall Street Journal, it is operated by the parent company.