Everyone’s debating where the markets are headed right now, and high volatility has investors wary.In an uncertain environment, Morgan Stanley’s European Strategy team has a few recommendations on how you should be investing right now:
#1 Wealth preservation more than wealth generation
First, that investing in this cycle is primarily about wealth preservation (in real terms) than wealth generation. Asset allocation is likely to be consistently difficult and fraught with contradictions given the volatile macro environment. Gold should remain a solid outperformer, and we like the optionality we get from cash at this time.
#2 Structurally high demand for quality yield
Second, that in an environment of structurally low rates, there is likely to be a commensurate structural demand for assets that offer a high but secure yield. Demographics also help in this regard as the DM baby boomers enter retirement. Consequently buying stocks with a good sustainable dividend yield should be a key part of anyone’s portfolio. From our perspective, we continue to believe our high and secure dividend yield strategy (the latest version of which can be found in exhibit 28) is a key way to play this theme.
#3 Structurally high demand for quality growth stocks
In a low growth, low return environment, companies with a sustainable growth or competitive advantage should significantly outperform, similar to the Nifty 50 in the 1960/70s. In some cases, such stocks re-rate substantially too. We believe that stocks with high EM exposure are good candidates in this regard, given the better underlying dynamics of EM relative to DM.