Morgan Stanley’s Adam Parker advises clients to be overweight energy due to an overall bullish view on the global economy.
Our global macro team has been advocating a risk-on stance, advising that improvement in Europe’s sovereign debt crisis, a second-half 2011 US economic rebound, and a soft landing in China will fuel sentiment. Among the three pillars to the macro bull case, the one we have the most confidence in is China, where we think a soft landing with both high growth and high inflation is the highest-probability outcome. Even if growth scares emerge in the second half of the year, our EM economist, Chetan Ahya, believes a soft landing is likely. We downgraded the energy sector on April 10, 2011, from overweight to market-weight, believing that the oil price would retreat as signs of demand destruction were emerging. Given the energy sector and oil price have lagged, we are upgrading the energy sector back to overweight today. Energy stocks in our portfolio now include a mix of high and low beta exposure – or a barbell strategy.
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