Summary of Key Points from the Conference Call Industry Overview - The Asia/EM equity markets are currently trading close to the bull case targets set for June 2026, primarily due to multiple expansions, which may not be sustainable without a significant reacceleration in global growth [8][10][19] - Valuations in Asia/EM are now 1.0-1.8 standard deviations above 10-year averages, indicating potential overvaluation [10][19] Core Insights - Earnings per share (EPS) growth is crucial for sustaining current valuations; without it, the market may face corrections [8][10] - China’s economic reflation is progressing slowly, while India is expected to see a rebound in growth rates [8][19] - The US dollar is anticipated to weaken further, which could benefit emerging markets [8][40] - The Bank of Japan (BOJ) may still consider rate hikes, while the Federal Reserve (Fed) is expected to cut rates significantly [8][19] Market Preferences - Overweight (OW) positions are recommended in Japan, Singapore, India, UAE, and Brazil, while underweight (UW) positions are suggested for Indonesia, Saudi Arabia, and Taiwan [8][19] - Preference for local currency earners, particularly in Financials, Domestic E-commerce/Consumer, and Industrials (including Defense) sectors [8][19] - Underweight positions in Energy and Materials (excluding Gold), with a selective approach in Information Technology [8][19] Earnings and Valuation Targets - Current and target prices for major indices as of September 30, 2025: - TOPIX: Current 3,138, Target 2,900, Fwd P/E 13.8x [17][19] - MSCI EM: Current 1,346, Target 1,200, Fwd P/E 12.5x [17][19] - MSCI China: Current 89, Target 78, Fwd P/E 11.2x [17][19] - CSI300: Current 4,641, Target 4,000, Fwd P/E 12.9x [17][19] Global Economic Outlook - Morgan Stanley continues to expect a global economic slowdown, which may impact equity markets [21][40] - There has been a surge in interest in emerging markets (EM), with inflows observed in 8 out of the last 10 weeks [44][47] Company Focus List - Notable companies included in the Morgan Stanley Asia Pacific ex Japan Focus List: - Bajaj Finance (India, Financials) with a market cap of $69.4 billion and a target price indicating a 16% upside [50] - Delta Electronics (Taiwan, Information Technology) with a market cap of $72.8 billion and a target price indicating a 31% upside [50] - Tencent Holdings (China, Communication Services) with a market cap of $787.5 billion and a target price indicating a 6.1% upside [50] Additional Insights - The focus list has outperformed the MSCI Asia Pacific ex Japan Index since inception, with a total return of 548.5% compared to the index's 318.8% [50] - Analysts express caution regarding the sustainability of current valuations without corresponding EPS growth [8][10][19]

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the Asia/EM (Emerging Markets) equity strategy, highlighting the current market conditions and future outlook for the region [2][4]. Core Insights - The recent rally in Asia/EM markets is primarily attributed to multiple expansions rather than earnings growth, raising concerns about sustainability [2][10]. - For the rally to continue into 2026, a significant reacceleration in global GDP growth and earnings estimates is necessary [4][14]. - Current downside risks for major Asia/EM indices range from 6% to 13%, while upside potential is limited to 1% to 8% [7][8]. - The 12-month forward P/E multiples have increased by 3.0 to 3.6 points since early April, returning to levels last seen in 2021, which are 1.0 to 1.8 standard deviations above the 10-year averages [11][12]. Earnings and Economic Outlook - Earnings estimate revisions have been flat to down since April, contrasting with the positive revisions seen in the US market [7][14]. - The economic team expresses concerns about growth risks, particularly in trade-dependent economies, with moderate deceleration expected in forward EPS for major markets [14][15]. - The report indicates resilience in domestic demand sectors like Financials and Consumer, while global cyclicals such as Energy and Materials are expected to face weakness [15]. Market Sentiment and Flows - There is a noted gap of approximately 10% between current index levels and base case targets, with markets nearing bull case targets [8][34]. - Sentiment indicators show complacency but not extreme euphoria, with inflows into EM equities increasing from 2 out of 10 weeks at the market trough in April to 8 out of 10 weeks recently [34][36]. Sector Performance - Emerging Markets (EM) equities are characterized as low-quality cyclicals, with historical performance showing sudden bursts of investor interest followed by disappointment [18]. - The report suggests a preference for Financials and domestic Consumer plays over traditional cyclicals like Energy and Materials, which are currently underweighted [25][30]. Conclusion - The report emphasizes the need for cautious optimism regarding the sustainability of the current market rally, highlighting the importance of economic growth and earnings recovery for future performance [2][4][18].

Summary of Key Points from the Conference Call Industry and Company Overview - The focus is on the **Chinese equity market**, specifically indices such as **Hang Seng**, **HSCEI**, **MSCI China**, and **CSI 300** [2][45]. Core Insights and Arguments 1. **Index Target Increases**: The year-end index targets for Hang Seng, HSCEI, MSCI China, and CSI 300 have been raised to **25,800**, **9,500**, **83**, and **4,220**, respectively, indicating an upside of **9%** for Hang Seng, HSCEI, and MSCI China, and **8%** for CSI 300 from current levels [2][45]. 2. **Earnings Growth Forecasts**: Earnings growth forecasts for MSCI China have been adjusted to **7%** for 2025 and **9%** for 2026, driven by improved earnings estimates and macroeconomic outlook [2][49]. 3. **Earnings Beat**: MSCI China is experiencing its first earnings beat after **13 consecutive quarterly misses**, with a **net 8%** earnings beat reported for 4Q24, marking a significant recovery [3][9]. 4. **Valuation Re-rating**: MSCI China's valuation is expected to align with MSCI EM, with a **12-month forward P/E** forecast raised to **12.5x**, closing the previous discount of **6%** [4][51]. 5. **Geopolitical Risk**: The geopolitical landscape has improved, reducing the equity risk premium for China, which is expected to enhance its investability [33][51]. Additional Important Insights 1. **US Tariff Exposure**: MSCI China has only **3%** revenue exposure to the US, the lowest among major EM trading partners, making it relatively insulated from potential US tariff hikes [7][38]. 2. **Southbound Flow**: There has been a significant increase in southbound capital flows into Hong Kong, with a record net inflow of over **US$100 billion** in the previous year and **US$50 billion** year-to-date [52][55]. 3. **Sector Performance**: Technology and AI-related sectors are showing stronger momentum, with recommendations to be overweight in these areas while waiting for broader market improvements [8][49]. 4. **Market Concerns**: Key concerns include potential escalations in US-China tensions, macroeconomic slowdowns, and deflationary pressures, which could impact market performance [8][62][63]. Conclusion The Chinese equity market is showing signs of recovery with improved earnings forecasts and valuation adjustments. However, geopolitical risks and macroeconomic factors remain critical considerations for investors. The overall sentiment is cautiously optimistic, with recommendations to focus on high-quality stocks and sectors poised for growth.