Morgan Stanley digital signage is displayed on the exterior of the company’s headquarters in New York. (Photographer: Mark Kauzlarich/Bloomberg)

Morgan Stanley Gives Up Predicting More Gains for Asia Stocks

(Bloomberg) -- Anyone savoring this week’s equity rally in Asia should just cash out right away.

That’s according to strategists at Morgan Stanley, who slashed year-end targets for seven benchmarks in the region, including their largest downgrade for Japan in almost two years. The first cut to the MSCI Emerging Markets Index since early 2016 implies no further gains for the gauge this year, while stocks in China, Hong Kong and Japan are also unlikely to return anywhere near their January peaks, the strategists wrote in a note dated Tuesday.

Worse-than-expected global economic data will weigh on corporate earnings, just as higher volatility across financial markets limits how much investors are willing to pay for risk assets, Morgan Stanley said. For a region that was delivering some of the world’s best returns as recently as January, the rest of the year will be a “rougher ride” for investors.

Morgan Stanley Gives Up Predicting More Gains for Asia Stocks

“All our covered markets will struggle in 2018 to regain recent peaks in January,” strategists led by Jonathan Garner wrote. “For EM, this is our first index target reduction since early 2016; hence, it is a moment of some note for us.”

The largest target cuts were in China, where stocks have rebounded this week amid signs the country is steering away from a trade dispute with the U.S. Morgan Stanley predicts the MSCI China Index will barely budge from Tuesday’s close by the end of 2018, and it is targeting a 4,200 finish for the CSI 300 Index. While that implies another 7 percent gain for the A-share measure, it’s far lower than the bank’s previous target of 4,500.

Strategists elsewhere are starting to trim their year-end forecasts for global stock gains, having held on for two months after a surge in volatility roiled investors in February. Tuesday saw the first cut to the S&P 500 Index from Wall Street.

©2018 Bloomberg L.P.