Morgan Stanley on portfolio positioning across AI, Japan and U.S. stocks

• The 'AI beneficiary trade' is back on, despite a crowded July sell-off, as underlying fundamentals remain strong.
• Earnings revisions are finally inflecting higher in Japan and Europe, supporting markets in these regions, particularly defense and banking stocks.
• Diversification into non-correlated assets like financials and healthcare is advised to mitigate risks during market unwinds.
• The biggest risk to the stock market is persistent inflation, which could lead to further Fed rate hikes, hampering earnings and bringing down valuations.

Morgan Stanley's Andrew Slimmon discusses portfolio positioning, noting the resurgence of AI beneficiaries after a July correction and positive earnings revisions in Japan and Europe, including defense and banking sectors. He remains optimistic about equities due to strong earnings but identifies persistent inflation and potential Fed hikes as key risks.