Morgan Stanley’s Andrew Slimmon sees opportunities in Japanese and European markets, with European defense among the sectors he flagged.
Slimmon said the impression that these markets lag the US because earnings often disappoint is starting to change.
What Morgan Stanley Sees in Japan and Europe
Slimmon, a managing director and senior portfolio manager at Morgan Stanley Investment Management, spoke on CNBC’s Squawk Box Asia. He tied Japan’s gains this year to companies lifting their earnings estimates.
“We’re seeing a lot of companies that are starting to revise up their earnings estimates, and that’s, I think, the key reason why the Japanese stock market has done well this year,” Slimmon said.
The Nikkei 225 shows how well Japanese stocks have done this year. By September 18, Japan’s Nikkei 225 had climbed about 25.4% this year but remained nearly 12% below its June record.
In Europe, he described defense as one opportunity but not the only one. He pointed to banks, which he said have performed very well. The STOXX Europe 600 Banks index had gained about 18.87% this year.
Slimmon said stocks are now responding to the growth reflected in earnings revisions. He called this the key difference between 2026 and earlier years.
On US stocks, he also said narrow breadth, where a few mega-caps carry the US index, is not always bad for stocks. The Federal Reserve lifted its benchmark rate by 25 basis points to a target range of 3.75%-4% on September 16. It was the central bank’s first increase since 2023.
Slimmon noted the market sat at the same level on the day of the hike as in May.
“So the market has really treaded water here for a while, and yet earnings revisions keep going up. They keep going up. So I think that’s why I remain optimistic,” he added.
Mike Wilson, the bank’s chief US equity strategist, struck a more cautious tone earlier this month. He warned that oil climbing to $120 or higher within 30 days would drain liquidity.
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Morgan Stanley Swaps 12 of 15 Picks After a Market-Beating Year
The bank’s equity strategists have also made their own call on US stocks. Morgan Stanley refreshed its Vintage Values list, a roster of stocks to hold for 12 months. The 2026 edition returned 32.12% between September 9, 2025, and September 11, 2026.
The S&P 500 gained nearly 19% over the same period, leaving the list 1,316 basis points ahead. Strategists narrowed more than 50 analyst recommendations to 15 for the 2027 edition. Only Amazon, McKesson, and Visa carry over from last year.
Alphabet, Apple, Coca-Cola, Dynatrace, Eli Lilly, Equinix, and Williams Companies are among the new picks.
Of the 15 stocks, 60% sit in the top two quality tiers, compared with 56% for the S&P 500. The list also trades at a premium to the broad market on most valuation measures.
Equity strategist Michelle Weaver said the list has an “anti-momentum” tilt.
“The stocks on the list are not simply stocks that have worked recently but rather ones our analysts have identified for their strong bottom-up drivers,” Weaver wrote in a note.
Several of the new picks have lagged this year. Eli Lilly was up about 8% as of September 21, trailing the S&P 500’s 13% gain.
Alphabet had risen 10.5% through September 15, leaving it behind the index. Coca-Cola has been the standout, gaining roughly 28%.
That mix lines up with Weaver’s point that the list is not simply a collection of recent winners. Third-quarter earnings season, which includes Coca-Cola’s report on October 20, will offer an early read on whether those company-level drivers hold up.
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