Here are Morgan Stanley’s top Asia picks for the fourth quarter

October 21

As investors attempt to navigate volatile global markets, Morgan Stanley is reiterating its recommendation to buy dividend stocks. The investment bank noted that the MSCI Asia Pacific ex-Japan High Dividend Index has slightly underperformed the MSCI Asia Pacific ex-Japan index in the third quarter of the year, but its analysts continue to see potential looking ahead. “We recommend balanced and flexible strategy investors supplement their portfolio with dividend income, given high uncertainty into U.S. elections on November 5, and with a global monetary easing cycle likely to put a stronger focus on dividend yield,” Morgan Stanley’s analysts wrote in an Oct. 15 research note. “Investor appetite on corporate reform and shareholder returns across Asia/EM also remains high, which is likely to benefit dividend-oriented stocks.” For the Asia-Pacific ex-Japan region, the Wall Street bank produced a screen of what it called its “conviction list” of enhanced dividend stocks, using this criteria on a 12-month forward-looking basis: Stocks rated overweight or equal-weight by Mogan Stanley analysts; At low risk of dividend cuts; With a market cap of over $2 billion. Here are 10 overweight-rated stocks that appeared on Morgan Stanley’s screen: Hon Hai A number of stocks on the list are based in China, Hong Kong and Taiwan, including Apple -supplier Hon Hai Precision . Morgan Stanley named the world’s largest contract electronics manufacturer as its top pick. The investment bank considers the stock an “undervalued AI play” and expects it to have “strong AI server sales and steady consumer business” this year. Shares in Hon Hai are up nearly 100% year-to-date. “Despite the [year-to-date] rally, we believe Hon Hai’s solid Apple exposure and AI server revenue growth potential are still underappreciated by the market,” the analysts wrote. They expect iPhone replacement demand to drive Hon Hai’s consumer business in 2025 and 2026, while iPhone assembly revenue should be sustained. Shares of Hon Hai are traded on the Taiwan Stock Exchange and are included in ETFs such as the iShares MSCI Taiwan ETF (6.2% weight). Morgan Stanley has a 12-month target price of 270 New Taiwan dollars ($8.42) on the stock, giving it around 30% potential upside. PetroChina Another stock that stands out on the list is Chinese oil and gas giant PetroChina . Morgan Stanley has a target price of 8.76 Hong Kong dollars ($1.13) on the stock, implying around 43% upside. “PetroChina is the most sensitive of China’s Big Three oil majors to oil prices due to significant marginal oilfield exposure, and it sees the highest yield at > US$65 Brent,” analysts at the bank wrote. Brent crude futures with December expiry were trading around $74.45 per barrel on Friday. “Downstream businesses have seen rapid profitability improvement in recent years. The company’s rich natural gas resources are an essential part of China’s carbon neutral roadmap and its significant potential has yet to be unlocked,” the added. Shares of PetroChina have a dual listing on the Hong Kong and Shanghai Stock Exchanges . They also trade as American Depository Receipts in the U.S. under the PCCYF-US ticker. — CNBC’s Michael Bloom contributed to this report.

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