Morgan Stanley(US:MS)2025-04-27 03:56Investment Rating - The report maintains an Equal Weight (EW) stance on China, while preferring Japan, India, Singapore, and UAE, and underweight (UW) on Taiwan and South Korea [1][2]. Core Insights - The report highlights that multipolar world trends are gaining traction, with deal-making potential tempered by uncertainty in trade and earnings outlook [1]. - Financials are preferred over Semiconductors and Tech Hardware, with a focus on defensive sectors such as Gold, Aerospace & Defence, and Supply Chain Diversification Beneficiaries [2]. - AI is expected to play a central role in 2025, with a preference for Adoption Leaders over Semiconductors [2]. Summary by Sections Trough Indicators - The report outlines 12 signposts for identifying a trough in Emerging Market (EM) equities, scoring from 1 (no sign of trough) to 5 (compelling trough indicator), with a total score of 37 out of 60 [10]. - Key indicators include expectations for US Federal Reserve monetary policy (score 3), the US dollar peaking (score 4), and technical indicators moving into oversold territory (score 4) [10]. Market Performance - Historical data shows that corrections have been relatively modest compared to historical bear markets, with an average fall of 38.5% from peak to trough from 1997 to 2022 [11]. - Current valuations for Emerging Markets (EM) are approximately 23% below prior recession average trough levels, indicating potential investment opportunities [12]. Trade Dynamics - The report discusses the trade balances of developed markets and emerging markets, highlighting the significant trade surplus of China and the trade deficits of several developed nations [33][35]. - It emphasizes that the US remains dependent on China for many imports, which could impact future trade negotiations and economic policies [44][46]. Economic Outlook - The US macro outlook presents various scenarios ranging from optimistic to adverse, with GDP growth projections indicating potential declines due to trade shocks and fiscal policies [49]. - The report suggests that immigration policies and tariff rates will significantly influence economic growth and consumer spending in the coming years [49].