Morgan Stanley has advised clients to get ahead of the next market cycle by buying shares of high-quality growth companies in Asia and emerging markets. “We believe the market is now in transition to a new cycle that would favor Growth over Value,” the Wall Street bank’s strategists, including Gilbert Wong, said in a note to clients on Dec. 11. The strategists also noted that investors’ risk allocations in Asia and emerging markets had turned more defensive since mid-November as the market transitions to the next cycle, creating a dip in some growth stocks. “Our suggested strategy is to buy the dip on Quality Growth stocks in APxJ/EM,” the Morgan Stanley strategists said, referring to the Asia Pacific region excluding Japan. The table below shows Morgan Stanley’s (MS) “quality growth” stock picks with at least 10% upside potential, according to the bank: Among the stocks listed, 11 of the top 14 stocks with the biggest upside potential are listed in mainland China. Elsewhere, Morgan Stanley expects Hong Kong-listed Tencent Holdings to rise by 40% over the next 12 months. Shares of India-listed SBI Life Insurance , Taiwan Semi , and Wal-Mart de Mexico all offer more than 15% upside, according to the Wall Street bank. The strategists cited several signs of rising risk aversion among investors, including gold futures touching record highs as prices for crude oil and industrial metals fell. They also noted that emerging market stocks have underperformed U.S. stocks by the widest margin in over 22 years. These trends accelerated in December as defensive and quality-oriented stocks outperformed the broader market. The bank’s strategists recommended viewing any further gains for value stocks or declines in growth stocks as buying opportunities. — CNBC’s Michael Bloom contributed reporting.
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