Morgan Stanley upgrades Malaysia to 'overweight'

Malaysia has been upgraded to 'overweight' from 'equal-weight' while Russia replaces China as Morgan Stanley's top pick among the largest emerging stock markets

SINGAPORE: Russia replaced China as Morgan Stanley's top pick among the largest emerging stock markets in its developing-nation model as the brokerage advised investors to take on riskier assets.

Malaysia was upgraded to "overweight" from "equal- weight" while Thailand and Colombia were cut to "underweight" from "equal-weight", according to the report.

"We upgrade Malaysia to overweight. Its model rank has improved to No. 5 on earnings growth and No. 7 on revisions breadth and it continues to rank highly on business cycle, currency, and equity supply/demand," Morgan Stanley said in a research note dated June 17.

"We downgrade Thailand and Colombia to underweight; both countries saw deterioration in revisions breadth and earnings growth," it said.
Jonathan Garner, Morgan Stanley's chief Asian and emerging-market strategist, last month made his first asset allocation change since June 2009, telling investors to increase their holdings of developing-nation equities and cut cash levels given the prospects of a "strong year" for the global economy.

The MSCI Emerging Markets Index has retreated 4.2 per cent this year, following last year's record 75 per cent rally.

"At present we are seeking beta aggressively," London-based Garner wrote in a report on Thursday, referring to a measure of risk. Russia "has the highest beta", he said.

Morgan Stanley raised its "overweight" on Russia to 220 basis points from 100 basis points, and cut its position in China to a 125 basis point "overweight" from 220 basis points.

The change means Russia joins South Korea as the brokerage's largest "risk positions", according to the report. Russia's overall ranking within Morgan Stanley's country model also rose to second, lagging behind only the Czech Republic.

First Deputy Prime Minister Igor Shuvalov this week urged investors to be wary of Russian stocks as policymakers in the world's biggest energy exporter try to prevent the economy from overheating and encourage long-term investment.

"I'd be very cautious about stock investments in this country," Shuvalov said in an interview in Moscow.

"I would welcome real investors who can build factories, something new in this country," he added.

Russia now ranks first for earnings growth and second on two valuation measures within Morgan Stanley's models. Its economy is also "in somewhat of a sweet spot" with growth forecast to accelerate through the fourth quarter while economic expansion slows in Brazil, India and China, the brokerage said.

The four are collectively known as the BRIC markets. - Bloomberg, Reuters