Morgan Stanley published its 2022 Global Strategy Outlook. It’s strategists say the easy returns are over for U.S. equities, credits and Treasuries, but see value in European and Japanese stocks in 2022.
“As unprecedented fiscal and monetary policy support fades, fundamentals dominate.”Andrew Sheets, Chief Cross-Asset Strategist for Morgan Stanley Research.
According to Morgan Stanley, in contrast to U.S. equities, stock markets in Europe and Japan are more reasonably priced and geared toward growth. “And thanks to reduced inflationary pressures, their central banks should be exceedingly patient,” says Sheets, whose team recommends investors overweight both markets.
In Japan, equities continue to deliver improving returns on equity, while economic stimulus, business reopenings and strong global capex all suggest that Japan’s stock market could appreciate 12% next year.
Meanwhile, the MSCI Europe index has enjoyed its best period of relative outperformance in 20 years compared to the rest of the world, and that pattern should continue thanks to increased mergers and acquisitions, buyback activity and changes in investor positioning since many global portfolios had been underexposed to the region.
“Our combined earnings and valuation assumptions suggest that European stocks can deliver an 8% price return and double-digit total return,” says Graham Secker, Chief European Equity strategist. The team’s top sector picks include autos, energy and financials, which should all benefit from the move up in real yields.
Some other highlights of the report:
– Inflation peaking as supply chains ease up
– S&P500 to decline 5% in 2022
– Europe and Japan reasonably priced and should see growth
– Stock selection to matter more than the style and sector
– Oil (90$/barrel) and Aluminum top pick amongst metals
The 5% predicted drop in S&P 500 by Morgan Stanley is bullish compared to the 15 – 20% correction Mike Wilson and other pundits have been suggesting for months.
For more info, read the report: