Andrew Slimmon of Morgan Stanley sees potential in European and Japanese equities, highlighting European defense as one of several promising areas.
According to Slimmon, the traditional perception that these international markets trail the US due to frequent earnings misses is beginning to shift.
What Morgan Stanley Sees in Japan and Europe
During an appearance on CNBC’s Squawk Box Asia, Morgan Stanley Investment Management senior portfolio manager and managing director Slimmon attributed Japan’s recent market strength to upward revisions in corporate profit forecasts.
“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.
Performance figures for the Nikkei 225 illustrate this strong momentum. By September 18, the index had advanced approximately 25.4% for the year, though it remained roughly 12% below the record high reached in June.
Regarding Europe, he pointed to the defense sector as a distinct opportunity alongside others, noting the impressive performance of European lenders. The STOXX Europe 600 Banks index posted a gain of roughly 18.87% over the course of the year.
Slimmon emphasized that equities are now reacting directly to the underlying growth captured in earnings upgrades, marking a distinct shift for 2026 compared to prior years.
Addressing US equities, he remarked that narrow market breadth—where just a handful of mega-cap companies drive index gains—is not inherently negative. On September 16, the Federal Reserve implemented a 25 basis point benchmark rate hike, bringing the target range to 3.75%-4% in the central bank’s first rate increase since 2023.
Slimmon observed that the broader market was trading at the exact same level on the day of the rate hike as it had been back 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.
Conversely, the bank’s chief US equity strategist, Mike Wilson, adopted a more cautious stance earlier in the month, cautioning that a spike in oil prices to $120 or higher within a 30-day window could drain market liquidity.
Morgan Stanley Swaps 12 of 15 Picks After a Market-Beating Year
Morgan Stanley’s equity research team has also issued a fresh outlook on US equities by overhauling its Vintage Values portfolio—a curated collection of stocks intended to be held for a full 12 months. The 2026 iteration generated a total return of 32.12% between September 9, 2025, and September 11, 2026.
That performance outperformed the S&P 500’s roughly 19% advance over the identical timeframe by 1,316 basis points. For the upcoming 2027 selection, strategists evaluated more than 50 analyst recommendations down to a final 15 stocks, with Amazon, McKesson, and Visa being the only names retained from the previous portfolio.
Newly added selections include Alphabet, Apple, Coca-Cola, Dynatrace, Eli Lilly, Equinix, and Williams Companies.
Among the final 15 equities, 60% fall within the top two quality tiers, compared to 56% for the S&P 500 index. Furthermore, the portfolio generally trades at a valuation premium relative to the broader market across most valuation metrics.
Equity strategist Michelle Weaver explained that the portfolio features an “anti-momentum” characteristic.
“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 fresh inclusions have actually lagged behind the broader market this year. Eli Lilly rose about 8% through September 21, trailing the S&P 500 benchmark’s 13% gain.
Similarly, Alphabet climbed 10.5% through September 15, keeping it behind the broader index, whereas Coca-Cola emerged as a standout performer with an approximate 28% increase.
This diverse performance profile aligns with Weaver’s assessment that the roster avoids simply compiling recent market winners. Upcoming third-quarter financial results, starting with Coca-Cola’s scheduled report on October 20, will provide an initial test of whether these specific fundamental drivers remain intact.
Subscribe to our YouTube channel to watch leaders and journalists provide expert insights