Global investors looking beyond saturated US stocks should pivot toward Japan and Europe – says Andrew Slimmon – a senior portfolio manager at Morgan Stanley.
Speaking recently with CNBC, Slimmon highlighted a major shift underway across international equity markets.
While both regions historically carried a reputation for lagging Wall Street due to “disappointing” corporate profitability, robust upward earnings revisions are rapidly reshaping that narrative.
Coupled with expanding corporate profit margins and attractive relative valuations, European and Japanese stocks present compelling entry points as earnings momentum accelerates globally.
Why Japanese stocks are attractive?
Japan’s stock market is demonstrating significant strength in 2026, breaking away from years of structural underperformance.
The benchmark Nikkei 225 has surged roughly 25% year-to-date, fueled directly by a huge wave of corporate earnings upgrades.
During the second quarter of this year, Japanese listed firms posted a staggering 69% year-on-year aggregate profit growth, comfortably outstripping consensus expectations.
Corporate governance reforms, persistent yen weakness, and corporate pricing power are allowing Japanese exporters and domestic firms to raise forward earnings guidance.
Slimmon pinpointed these structural upgrades as the underlying factors propelling Japanese stocks forward.
“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,” he wrote.
What makes European stocks attractive?
Across the Atlantic, European stocks are also proving that their fundamental backdrop extends far beyond sluggish macroeconomic headlines.
Slimmon emphasized that while the defense sector has attracted significant investor interest amidst elevated global geopolitical spending, the EU banking industry has quietly emerged as an exceptional performer.
Boosted by sustained interest margins and resilient credit demand, the STOXX Europe 600 Banks index has gained nearly 19% year-to-date.
Broad European earnings-per-share are on track to expand by approximately 15% across full-year 2026, driven by corporate cost discipline and steady upward revisions.
“And also Europe and defense is one industry, but it’s not the only industry. Look at the banks; they’ve done very, very well,” the Morgan Stanley expert noted.
Why earnings power outweighs broad market lag
The defining divergence between 2026 and prior market cycles lies in how stock prices are responding to underlying corporate growth rather than macro sentiment alone.
In contrast to the top-heavy US market – where narrow market breadth driven by mega-cap tech names has left the broader index treading water near May levels – international stocks are steadily building momentum on earnings strength.
Even as central banks like the Federal Reserve adjust benchmark interest rates, corporate profit upgrades continue to climb higher.
This growing disconnect between stagnant index prices and rising fundamentals offers a prime setup for global stock pickers.
“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, adding that markets will really take off as investors appreciate the underlying earnings story.
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