Morgan Stanley’s recommended portfolio construction has a lower risk profile than our cross-asset benchmark, largely due to strategists’ recommendations for lower-than-average allocations in commodities and emerging-market stocks.

Overall, Morgan Stanley strategists suggest an overweight across a broad range of bonds, an equal weight in both stocks and cash, and a significant underweight for commodities. Here are some of the key views:

• Overweight core fixed income, including government debt, agency mortgage-backed debt and investment-grade debt. It is likely to be a good year for income investing as high-quality debt continues to provide attractive yields, especially when compared against the risk/reward tradeoffs of other assets.
   
• Overweight Japanese stocks. Japanese policymakers have been an outlier among central banks, keeping interest rates low to boost growth.
   
• Equal weight U.S. equities. For the past two years, the outlook was gloomier for stocks in the U.S. than anywhere else in the world. However, 2024 is shaping up to be different as U.S. equities should notch better outcomes than European or emerging market equities, particularly as central bankers globally aim for target rates. Within the U.S., healthcare is forecast to outperform, and Morgan Stanley prefers industrials relative to other cyclical sectors.
   
• Underweight emerging-market equities, except Mexico and India. China’s lackluster growth will weigh on emerging markets broadly, and there is an added risk that its economy will get caught in a debt-deflation tailspin. By contrast, Mexico is likely to benefit from the post-pandemic near-shoring trend, while India is forecast to see superior growth in earnings per share compared with broader emerging markets.