Morgan Stanley’s Andrew Slimmon identifies potential in European and Japanese equities, highlighting European defense among several favored sectors.
According to Slimmon, the traditional perception that these overseas markets trail the US due to frequent earnings disappointments is beginning to shift.
What Morgan Stanley Sees in Japan and Europe
Speaking on CNBC’s Squawk Box Asia, Andrew Slimmon—a managing director and senior portfolio manager at Morgan Stanley Investment Management—attributed Japan’s recent market gains to upward revisions in corporate 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 performance of the Nikkei 225 highlights this momentum. By September 18, Japan’s benchmark index had advanced approximately 25.4% for the year, though it remained nearly 12% below its peak from June.
Turning to Europe, Slimmon noted that defense represents just one of several attractive areas, alongside banking. The STOXX Europe 600 Banks index, for instance, has generated strong returns, rising about 18.87% over the course of the year.
Slimmon emphasized that equities are finally reacting to the fundamental growth displayed through earnings revisions, which he views as the main differentiator for 2026 compared to prior years.
Regarding US equities, he remarked that narrow market breadth—where just a handful of mega-cap companies drive the broader index—is not necessarily a negative sign for stocks. On September 16, the Federal Reserve implemented a 25-basis-point increase to its benchmark rate, bringing the target range to 3.75%–4% in what marked the central bank’s first rate hike since 2023.
Slimmon pointed out 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, Mike Wilson, the bank’s chief US equity strategist, 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 severely drain market liquidity.
Morgan Stanley Swaps 12 of 15 Picks After a Market-Beating Year
Morgan Stanley’s equity strategists have also adjusted their strategy for US equities by refreshing their Vintage Values portfolio—a curated list of stocks intended to be held for a 12-month period. The 2026 iteration delivered a total return of 32.12% between September 9, 2025, and September 11, 2026.
By comparison, the S&P 500 rose nearly 19% across that exact timeframe, putting the curated list 1,316 basis points ahead of the broader market. For the 2027 selection, strategists evaluated over 50 analyst recommendations to form a final group of 15 stocks. Only Visa, McKesson, and Amazon carried over from the previous year’s lineup.
The fresh additions to the roster feature companies such as Alphabet, Apple, Coca-Cola, Dynatrace, Eli Lilly, Equinix, and Williams Companies.
Out of the 15 chosen securities, 60% fall within the top two quality tiers, outperforming the S&P 500, where 56% of companies meet that standard. Furthermore, the selection trades at a valuation premium compared to the wider market across most metrics.
Equity strategist Michelle Weaver explained that the portfolio features an “anti-momentum” inclination.
“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.
A number of the newly introduced picks have underperformed in the market this year. As of September 21, Eli Lilly was up roughly 8%, lagging the S&P 500’s 13% gain.
Similarly, Alphabet had climbed 10.5% through September 15, trailing the benchmark index, while Coca-Cola emerged as an outperformer with an approximate gain of 28%.
This varied performance underscores Weaver’s observation that the list avoids simply chasing recent winners. The upcoming third-quarter earnings reporting season—beginning with Coca-Cola’s update on October 20—will provide early clues as to whether the underlying operational drivers for these companies remain intact.
Subscribe to our YouTube channel to watch leaders and journalists provide expert insights
Frequently Asked Questions
- Why is Morgan Stanley optimistic about Japanese stocks?
Andrew Slimmon attributes Japan’s market strength this year to companies revising their earnings estimates upward. - How did the Nikkei 225 perform leading up to September?
By September 18, the Nikkei 225 had climbed about 25.4% for the year, though it remained nearly 12% below its June record. - What sectors are highlighted as opportunities in Europe?
European defense and banking are among the sectors flagged, with the STOXX Europe 600 Banks index gaining about 18.87% during the year. - What is the Vintage Values list?
It is a curated roster of 15 stocks chosen by Morgan Stanley equity strategists to be held for 12 months, which recently outperformed the S&P 500. - Which companies carried over into the 2027 Vintage Values list?
Amazon, McKesson, and Visa are the only three stocks that carried over from the previous year’s selection.
