Tuesday, March 16, 2010

Morgan stanleys Americas Equity Morning Summary 03.16.10 $CVX

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Strategy/Economics/Portfolio Changes

Global Economics: Downside Risks Mounting for Global GDP in 2011

I think the downside risks for global GDP in 2011 are mounting, and they are severe, for three
  • Since monetary policy works with a lag, the tightening we see will mostly affect 2011 growth.
  • Higher bond yields are likely — our macro team looks for a sell-off in bond markets this year, and this would also dampen growth prospects for next year.
  • We look for sovereign-risk concerns to spread throughout the advanced economies as fiscal policy in most
countries is on an unsustainable path. If governments tighten fiscal policy in response, growth will
be hit. If they don’t tighten, growth will be hit too, just in a different way — by higher bond yields,
and by more private-sector savings (typically, when the government runs large deficits for longer,
the private sector starts to save more and spend less). And that’s my final point — fiscal
tightening in the major economies looks unlikely any time soon. On our forecasts, budget deficits
will stay elevated this year and next in US, Europe, UK and Japan, and debt levels will rise
further. I think markets will increasingly start to worry about this, as will central banks.

Commentary: 2010 — Still the Year of Mean Reversion

"Henry McVey is Head of Global Macro and Asset Allocation for Morgan Stanley Investment Management and is not a member of Morgan Stanley’s Research Department. His views are his own and may differ from the views of the Morgan Stanley Research Department and from the views of others within Morgan Stanley."

Cyclical-rebound stories are outperforming the secular growth stories. Thus, I still believe that
2010 will prove to be the year of mean reversion. For portfolios, this means that
developed-market equities will likely outperform developing market equities. The key factor to
watch is where inflation is rising. A clear theme is EM growing faster than DM, but I believe the
way to play it is through currencies not equities. Fundamentals are not working this year — what
is working is a cyclical rebound in oversold areas.

Morgan stanleys Americas Equity Morning Summary 03.16.10

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