Emerging markets to 'struggle' in 2022, indicates Morgan Stanley

Equity returns may lose their sheen in the upcoming calendar year as their valuations remain extremely expensive. And returns from the emerging market equities could be the worst hit.

According to the latest analysis by global brokerage Morgan Stanley, emerging markets may ‘struggle’ for returns in calendar year 2022.

Among other regions, the brokerage maintains an overweight position on European and Japanese equities, remains neutral on EMs and underweight on US equities.

“EM valuation is cheaper in absolute and relative terms, as forward price-to-earnings fell from over 16x at the peak in January 2021 to below 13x now, but remains far from being outright cheap. We expect EM equities in aggregate to continue to struggle next year, with only three per cent upside to our December 2022 target,” Morgan Stanley said.

According to the brokerage, EM valuation has cooled off from the January peak, but is far from being cheap. Therefore, it expects EM equities in aggregate to continue to struggle next year.

That said, there will be stock-specific opportunities for investors next year and focus should be on stock selection rather than chasing broad market-wide returns.

Among sectors, Morgan Stanley remains underweight on semiconductors (expressed primarily through Taiwan IT) and China Internet (reflected in the Communication Services GICS sector).

Utilities sector is also among their key underweight, as the brokerage remains cognizant of the elevated regulatory risk (and potential support mechanisms) through the decarbonisation process.

Back home, new listings and initial public offers will keep the action alive on Dalal Street over the next few days as secondary markets remain in a consolidation phase.

The BSE Sensex ended Monday’s range-bound session at 60,719 levels, up 32 points, while the Nifty50 shut shop at 18,109 levels, up seven points.

The Street, however, saw three stocks debuting on the bourses with varying listing pops.

Shares of Sigachi Enterprises, for instance, debuted at Rs 575 per share on the BSE, commanding a premium of 253 per cent over its issue price of Rs 163.  

That apart, Policybazaar listed on the bourses with a 17 per cent premium at Rs 1,150 per share. Its issue price was Rs 980.
For both these stocks, analysts suggest existing investors to maintain their positions while new investors should wait for better entry points.

On the contrary, SJS Enterprises saw a muted debut on the bourses with the shares getting listed marginally lower than issue price at Rs 540 on the BSE.

On Tuesday, stock-specific action will continue to dominate trends in the secondary market along with global cues.

Besides, market participants will also track the public issue of Tarson Products. The IPO of the life-sciences company, which will enter its second day today, sailed through on the very first day of the issue with 1.1 times subscription.