Morgan Stanley Sees Deja Vu of 2000 for Emerging, Japan Stocks

(Bloomberg) -- If you’re counting on another great year for emerging-market stocks, you may be disappointed.

That’s what Morgan Stanley chief Asia and emerging markets equity strategist Jonathan Garner suggested in a Jan. 15 report, arguing that early performance trends aren’t reliable full-year predictors for developing markets. 

For investors who were around 18 years ago, there may be a sense of deja vu. In emerging markets and Japan, 2018 may be a year like 2000, “which begins well, gets more difficult and ends badly,” analysts led by Garner said in the report, citing late-cycle economic expansion, global equity bull market, central banks tightening policies and rising inflationary pressures.

And that was a year when the MSCI Emerging Markets Index of stocks plunged 32 percent, and Japan’s Topix tumbled 25 percent -- a bleak picture for those celebrating this year’s strong start. Developing-nation equities are up 5 percent year-to-date, building on its 34 percent rally last year, while the Japanese stock benchmark is still trading at a 26-year high.

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While Morgan Stanley’s year-end targets aren’t implying a decline that dramatic -- 2.1 percent for the MSCI Emerging Markets Index from its Monday close and 3.4 percent for the Topix -- analysts cite broad concerns on valuations developing-nation stocks and Japan excluding financials.

To contact the reporter on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net.

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Divya Balji, Tomoko Yamazaki

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