The Japanese stock market has triggered multiple circuit breakers, causing global economic recession fears. Morgan Stanley suggests adopting a defensive strategy

On August 5th, the Japanese stock market triggered the circuit breaker multiple times, with the Nikkei index closing down 12.40%, entering a technical bear market. Morgan Stanley believes that global economic recession fears, combined with the hawkish stance of the Bank of Japan's monetary policy, have led to sharp declines in the strong-performing Japanese stock and currency markets this year. Additionally, Asian stock markets plummeted, Asian semiconductor and equipment stocks retraced, the US dollar fell sharply against the Japanese yen, and based on the possibility of further short-term market declines, a more defensive investment strategy is recommended, emphasizing a shift from semiconductor stocks to essential consumer goods stocks. Morgan Stanley pointed out that due to the lack of key economic data releases in the coming weeks, as well as upcoming G7 and China policy meetings, concerns about global economic growth remain high. Furthermore, with unwinding of yen carry trades, the yen is expected to rise to 140 against the US dollar, leading to more funds flowing out of semiconductor stocks. Despite still high market positions and valuations, and the ideal cumulative performance of Japanese stocks, Morgan Stanley does not recommend bottom fishing in Asian semiconductor stocks. However, as long as the US economy achieves a soft landing, the sharp decline in Japanese stocks could bring opportunities. Morgan Stanley remains optimistic about the themes of nominal economic growth, currency reflation, and corporate reform in Japan