M FoundationAsia EM Equity Strategy | Asia PacificTarget price changes for Japan and ChinaMorgan Stanley Asia (Singapore) Pte.+Jonathan F GarnerEquity Strategist Jonathan.Garner@morganstanley.com +65 6834-8172 Daniel K BlakeEquity Strategist Daniel.Blake@morganstanley.com +65 6834-6597 Morgan Stanley Asia Limited+Laura WangEquity Strategist Laura.Wang@morganstanley.com +852 2848-6853 Morgan Stanley MUFG Securities Co., Ltd.+Sho NakazawaEquity Strategist Sho.Nakazawa@morganstanleymufg.com +81 3 6836-8926 Makoto FurukawaQuantitative Strategist Makoto.Furukawa@morganstanleymufg.com +81 3 6836-8923 Morgan Stanley Asia (Singapore) Pte.+Kristal JiEquity Strategist Kristal.Ji@morganstanley.com +65 6834-6949 Morgan Stanley Asia Limited+Crystal NgEquity Strategist Crystal.Ng@morganstanley.com +852 2239-1468 Raymond K LiuEquity Strategist Raymond.K.Liu@morganstanley.com +852 2848-7293 Catherine ChenEquity Strategist Catherine.Chen@morganstanley.com +852 3963-4186 Morgan Stanley appreciates your support in the 2024 Institutional Investor All-Asia Research Team Survey. Request your ballot here. We raise our Topix base case target for end 2024 to 2,800 (our prior bull case and +11% upside vs. spot). Our new MSCI China target is 53 (+2% versus spot), Hang Seng target 16,000 (+1%) and CSI 300 3,500 (+7%). Our thesis of a new era for Asia / EM equities continues with divergence in performance year to date reflecting shifts in geopolitical, macro and earnings fundamentals. This is driving investor portfolio re-allocation. For Topix we raise our EPS forecasts moderately for both 2024 and 2025 based on incoming macro data and earnings guidance. This is broadly in-line with a gradually rising trajectory for consensus. However, the major driver of our target upgrade is our view that the market can now sustain a 15.0x forward P/E multiple (vs. 14.0x previously and current consensus of 14.4x) given recent and prospective strong investor flows consequent upon buy-in to the secular bull market thesis for Japan, which we laid out in our Blue Paper thesis last October - Japan Equity Strategy: Japan Secular Bull Market Arrives: Here is How to Play It (15 Oct 2023). We continue to prefer domestic sector exposure in Japan including Banks and Real Estate. Within the China market, we continue to prefer A shares to offshore China given the sector skew to manufacturing, industrial and clean energy sectors, as well as its historical record of greater reaction to onshore policy-easing, which we expect to incrementally step up during 2024. For MSCI China we now expect 7% EPS growth for 2024 and 9% for 2025 (cumulatively 21% below consensus). We now also assume that China's 3D challenges (Debt, Demographics and Deflation) and multipolar world dynamics - including rising allocation to EM and Asia ex China mandates - keep the valuation multiple at 9.5x and at an approximate 15% discount to MSCI EM where...
