Morgan Stanley cuts MSCI EM target, sees growth in Japan, India

Morgan Stanley has updated its economic forecast for several major markets in 2024, with a mixed outlook that highlights growth potential in Japan and India while predicting underperformance for China and other emerging markets. The financial firm’s analysts expect Japan’s ongoing corporate reforms to fuel robust GDP and earnings per share (EPS) growth. Simultaneously, India’s young population is anticipated to drive significant economic progress.

In a contrasting scenario, China and emerging markets are likely to face economic headwinds. Morgan Stanley cites a global growth slowdown, debt-deflation issues, increasing interest expenses, and a weakening US dollar as contributing factors to their subdued outlook. The (EM) Index target has been revised downward to 1,000, representing a modest 4% upside. This adjustment reflects a decreased earnings forecast by an additional 5% for the period from 2023 to 2025.

Specifically for China, the real GDP growth is expected to be limited to 4.2%, with nominal GDP seeing a slight increase to 4.8% in 2024. The is forecasted to weaken against the US dollar, potentially reaching an exchange rate of 7.5 in the first half of 2024.

India’s economy, however, is projected to experience robust growth with nominal GDP expected to expand by 11.6% in 2024 and by 11.2% in 2025. This optimistic projection is largely attributed to the country’s youthful demographic profile, which is seen as a key driver of economic activity.

Japan’s outlook is also positive, with the nation appearing to emerge from three decades of economic stagnation. Accelerated corporate reform efforts are seen as a critical factor in driving the country’s GDP and EPS growth forward.

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