You’ve heard a lot over the past few months about the emerging market carnage.
Well, it’s time to buy, argues Morgan Stanley:
We move to ACCUMULATE (from HOLD) our tactical marketdirectional stance for EM currencies and rates. We maintain our HOLD in EM credit, owing to supply-related concerns.
For EM broadly, we see scope for stability and market recovery over 4Q13, on the back of (1) improved valuations; (2) what we expect to be a period of improvement in the data; and (3) better overall technicals for local markets. The re-pricing of markets since May has been dramatic, with real trade-weighted exchange rates having depreciated to near all-time lows and embedded risk premia in local curves reaching multi-year highs. Our models imply the liquid EM rates curves are pricing in a US 10y note yield north of 3.1%. This is broadly consistent with our Interest Rate Strategy team’s baseline forecast going in to 3Q14.