Morgan Stanley raises MSCI Europe’s ’24 index target on AI boom

Morgan Stanley raised its year-end target for the MSCI’s European index on Tuesday, citing the positive impact of artificial intelligence (AI), increased deal activity, and expectations for a smooth US economic slowdown, Reuters reported.

The Wall Street brokerage revised its index target to 2,230 from its prior estimate of 2,115.

“Evidence of the post-Fed pivot soft landing playbook has strengthened. As a result, we have increasing conviction in a market re-rating more in line with historical soft-landing periods,” Morgan Stanley strategists said in a note.

Traders are predicting a 63 per cent chance of the US Federal Reserve cutting interest rates in June, according to the CME FedWatch tool. The European Central Bank (ECB) is taking a cautious approach to rate cuts despite cooling consumer prices, due to strong wage growth and underlying price pressures.

Investor confidence in a soft landing for the US economy is increasing, driven by expectations of rate cuts and declining consumer prices. The AI boom has benefited companies in both the US and Europe.

In light of these developments, the brokerage also revised its recommendations for several European sub-sectors.

 Morgan Stanley upgraded the semiconductors sector to overweight from equal weight, citing a surge in AI activity and increased demand for advanced semiconductor equipment supply.