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Investment advisory firm Morgan Stanley has raised Asia and emerging market (EM) index targets in its latest report titled "Asia Emerging Markets Strategy: New Bill Run Market Continues", which was released on Monday.

Expressing confidence in emerging markets bull cycle, it said that "a new bull cycle is beginning".

"We now feel even more confident in a new bull cycle for Asia/EM equities. We raise our base case MSCI EM target a further 10 per cent to 1,100 (12 per upside)... We also upgrade China to overweight, joining our broader North Asia preference," it noted in the report.

MSCI Emerging Markets Index is a selection of stocks that is designed to track the financial performance of key companies in fast-growing nations. It is one of a number of indexes created by MSCI Inc., formerly Morgan Stanley Capital International.

"In recent trading, the MSCI EM index has come to within 3 per cent of our base case target. Half of our upgrade is related to higher earnings growth and half to a 0.5x point rise in our forecast forward P/E multiple (to 11.5x from 11.0x)," the report said further.

"We also upgrade our stance on China to overweight from equal-weight (+50bps), joining our existing North Asia overweights of Korea and Taiwan (now also +50bp each), while downgrading Thailand to underweight (alongside India, Malaysia, and New Zealand). This is the first time, we have been overweight on China versus MSCI EM since February 2021," Morgan Stanley explained.

EM bull cycles often start in US recessions, and this may again prove to be the case, but a deep downturn throughout 2023 would take longer to digest, it said.

China's transition from Covid-zero to mitigation is also likely to be bumpy in terms of growth and earnings recovery, the report noted further.