Emerging-Market Rally Has Room to Run, Morgan Stanley Says
Valuations of EM assets aren’t looking “frothy” and dips present opportunities to buy, Morgan Stanley analysts, led by Hans Redeker, global head of fx strategy, write in report.
- This week’s wobble in EM is not due to sensitivity to a more hawkish Fed but more related to drops in stocks and commodities
- Morgan Stanley forecasts 7 Fed hikes through the end of 2018, compared with around 5 priced in by the market at the moment
- Not every Fed tightening cycle results in EM weakness and USD strength, as seen in the 2004-2006 period
- Near-term weakness in EM is possible, and should global markets struggle Morgan Stanley is adding a long USD/KRW position
- NOTE: EM stocks have fallen 1.6% in past 3 days, while EM currencies dropped 0.9%: MSCI indexes