Morgan Stanley Advises Diversification into Japan and Europe Amid Robust Earnings Growth

Last updated: September 23, 2026 5:59 pm

2 weeks ago

1 Min Read

Morgan Stanley is encouraging investors to diversify their holdings into Japan and European markets, with a particular focus on the banking and defense sectors. Senior portfolio manager Andrew Slimmon attributes strong market performance in these regions to increasing earnings estimates, signaling a significant shift from previous trends. Despite concerns about narrow breadth in U.S. markets, Slimmon maintains an optimistic outlook, confident in the power of continuous earnings revisions.

For investors seeking to strategically diversify their portfolios, Morgan Stanley is highlighting compelling opportunities within Japan and European markets. The financial giant specifically recommends focusing on high-performing sectors such as banking and defense, where underlying growth signals a promising outlook.

Andrew Slimmon, a senior portfolio manager at Morgan Stanley, shared his insights on CNBC's "Squawk Box Asia," challenging the conventional view that these markets consistently trail the U.S. due to unmet earnings expectations. Slimmon emphasized that this narrative is rapidly shifting, driven by a surge in positive earnings revisions. "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 stated. He further noted similar positive trends across Europe, singling out banks for their strong performance, alongside the defense industry, as key areas of growth.

This responsiveness of stocks to tangible underlying growth, revealed through corporate earnings revisions, represents a crucial differentiator from prior years. Slimmon remarked that this is "the key difference between 2026 and really previous years," predicting that "the market will really take off as investors realize the earning story is powerful."

Addressing the U.S. market, Slimmon acknowledged concerns regarding 'narrow breadth,' where a select group of mega-cap stocks propels an index while the majority of others stagnate or decline. However, he suggested that this dynamic isn't inherently detrimental to equity markets. He pointed out that despite the Federal Reserve's recent rate hike, the market has largely maintained its position since 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," Slimmon concluded, underscoring his continued confidence in market strength fueled by persistent earnings growth.