Morgan Stanley is telling UK clients to maintain or increase their exposure to oi:
We are overweight Energy. Since mid-September the energy sector has been the biggest overweight in our European Model Portfolio (see ‘Making Energy Our Biggest Overweight, September 14 2009’). We highlight six reasons for this stance:
1) The sector has underperformed substantially since the market troughed; 2) investor sentiment on energy is downbeat; 3) the sector is very cheap; 4) earnings momentum is likely to accelerate; 5) is a beneficiary of strong Chinese growth; 6) a winner from reflation & steep yield curves.
They go on to discuss the benefits of both big oil companies and small oil companies. Big oil has outperformed the UK market this year while small oil has risen over 1500% since 2000.
We recommend UK investors maintain an overweight position in energy given attractive valuations, sound balance sheets, good earnings momentum and the prospect of continued commodity price appreciation. Within the sector the prospect of increased volatility and uncertainty as we enter the tightening cycle should benefit Big oil, while industry fundamentals continue to point to a favourable environment for Small oil also. Our oils teams’ preferred stocks are BP, BG, Tullow Oil, Afren and Wood Group (all Overweight).
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