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| Morgan Stanley may upgrade emerging-market targets |
| SI Team / Mumbai Jun 08, 2009, 00:03 IST |
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The research firm is predicting that earnings in emerging markets will post a rebound of 20 percent in 2010.
Emerging-market stocks have erased a performance gap with developed peers amid positive earnings revisions, prompting a possible increase in the index target for the first time in 18 months, Morgan Stanley said.
The MSCI Emerging Markets Index rose within 1 percent of the brokerage's year-end estimate of 810 this week, regaining “all performance losses relative to the MSCI World index since late 2007,” strategists led by Jonathan Garner said in a report dated June 4.
“Emerging-market equities reached three key milestones this week,” the strategists wrote. “Our challenge now is to assess whether global liquidity and the incoming economic and corporate earnings data warrant making our first price target upgrade in over 18 months.”
The MSCI Emerging Markets Index has rallied 38 percent this year, outpacing a 7.2 percent increase in the MSCI World Index. An indicator comparing earnings upgrades with downgrades in emerging markets turned positive this week for the first time since November 2007, the report said. Stocks are now valued at 15 times reported earnings in developing nations, more than the average multiple of 13 times over the past five years, according to data tracked by Bloomberg.
MSCI's gauge of emerging markets gained 0.6 percent to 786.26 in Singapore after climbing as high as 805.2 earlier this week.
Trough, rally
The measure had dropped 66 percent from its record high in October 2007 to the trough reached a year later, more than the 50 percent decline in the MSCI World Index during the same period. Even after the rally this year, the developing-markets index is 41 percent from its peak. Garner, Morgan Stanley's chief Asian and emerging-market strategist, on April 22 reduced his equity allocation to 56 percent of assets from 60 percent, saying the rally left valuations less attractive. His decision was “premature” as fund inflows, high commodity prices and a weak U.S. dollar boosted share prices, yesterday's report said. Morgan Stanley is predicting earnings in emerging markets will contract 25 percent this year before posting a rebound of 20 percent in 2010. A decline in the cost of financing and the strength of developing countries' currencies could provide “upside” to dollar-denominated estimates, the analysts wrote.
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