Morgan Stanley: These 10 Trades Will Make You Rich In 2010

morgan stanley

Morgan Stanley has released its top 10 trades for 2010.

Among the themes: Keep buying stocks, keep buying large caps, but hold off on investing in banks.

Click here to see their strategy ->

Overweight Equities vs. Credit vs. Government Bonds

Trajectory matters in 2010 and relative returns will too. Equities to outperform credit and government bonds (risk adjusted returns favour equities), but the path will be volatile. Expect an early growth scare to end the equity rally and for a short-term flow back to low risk assets. We remain positive on credit, but think equity-like returns are over given large normalization within the asset class. Risk of UST bond bear market is rising.

Source: Morgan Stanley: Global Equity Strategy: The 2010 Global Outlook

Overweight Large Cap Growth (QARP – Quality at a Reasonable Price)

Overweight Non-Ferrous vs. Ferrous Commodity Equities / Overweight Agri Chemicals

Upside risk to contract negotiations in bulk commodities -- iron ore, coking & thermal coal -- will underpin bulk material and coal stocks through 2010. Chinese restocking to resume, adding downside support if growth disappoints or the USD rallies (a quinquennial upward GDP revision may also raise comfort on commodity growth sustainability in 2010). We like the lower risk/volatility nature of non-ferrous markets despite lower YE price forecasts vs. base metals (Zinc, Lead). Long term structural overweight in agriculture chemicals. BUY: Vedanta, Xstrata, Centennial, Newcrest and Monsanto.

Source: Morgan Stanley: Global Equity Strategy: The 2010 Global Outlook

Overweight Global Tobacco – Japan, US & Europe

In 2010 global tobacco manufacturers should benefit from the carryover of 2009's significant price increases, ongoing cost savings, a generally static competitive and regulatory environment, and stable volumes in most developed markets with faster recovery in emerging markets. Consumer spending on tobacco is significantly more resilient than spending on almost all other consumer goods, according to a Morgan Stanley survey. Regulatory threats (e.g.: display ban, plain packaging) should prove manageable. BUY: Japan Tobacco, Philip Morris, Imperial Tobacco, British American Tobacco.

Source: Morgan Stanley: Global Equity Strategy: The 2010 Global Outlook

Overweight Japanese Industrials & Exporters

A weaker yen should translate into a better outlook for Japanese equities. Fears of deflation in 2010, a BoJ that is out of step with the rest of the developed world, and an uncertain political climate keep us focused on areas that will benefit without needing to have all the stars aligned. We like Japanese Industrials -- early cycle, access/proximity to faster growing Asian/EM markets, and relative value attraction. BUY: SMC Corp, East Japan Railway, Fanuc, Komatsu, Makita, Sony, Tokyo Electron.

Source: Morgan Stanley: Global Equity Strategy: The 2010 Global Outlook

Buy Euro Pharma over US Pharma

We like the Pharma industry for its resilient earnings and feel it has been overly discounted for risks that are reasonably well documented, especially pipeline. We like European Pharma (Roche, Sanofi) over US Pharma, as exposure to faster growing markets is greater. European Pharma valuations have historically expanded versus US valuations when relative long-term growth expectations have risen vis-à-vis US. We like aggressive growth (healthcare equipment and biotech exposure) in the US (Baxter, Amgen, Thermo Fisher).

Source: Morgan Stanley: Global Equity Strategy: The 2010 Global Outlook

Overweight Consumer Non- Cyclical vs. Cyclical (Staples over Discretionary)

Consumer noncyclicals fit 3 of our 5 equity investment themes for 2010 -- QARP, pricing power (price takers over price makers) and Asia/EM exposure. They have significantly lagged consumer cyclical sectors in the 2009 rally, are less sensitive to rising bond yields (which we expect to be a major risk in 2010), and do not suffer the consumer deleveraging risk of the more cyclical consumer sectors. BUY: Danone, Diageo, Kellogg, Wal-Mart, Fosters, Kirin Holdings.

Source: Morgan Stanley: Global Equity Strategy: The 2010 Global Outlook

Overweight US Large vs. Small Caps

Small caps offer few of the traditional reasons why you overweight them as growth recovers. They are not at a discount to large, they are 100% domestically driven (no offshore earnings exposure and no weak USD translation benefits), they are overweight financials (greater long tailed NPL risk), they have less access to non-traditional funding sources (credit availability still tight) and balance sheet strength favours large caps.

Source: Morgan Stanley: Global Equity Strategy: The 2010 Global Outlook

Overweight Global Autos/Auto Components

Despite a strong 2009 recovery (driven largely by incentive- supported developed markets), we still like automakers and component manufacturers given potential for further volume normalization and global revenue exposure. Environmental regulations, stricter norms on fuel efficiency and growing consumer appetite for green technology is game-changer for many. We like growth names in the auto space with significant or rising EM exposure (Toyota, Fiat, Peugeot, Nissan, Valeo) or with pricing power/ technology leadership (Bridgestone, BorgWarner).

Source: Morgan Stanley: Global Equity Strategy: The 2010 Global Outlook

Underweight Financials – (European & UK)

Many of the sector's upside earnings surprise drivers are unlikely to get better in coming quarters, and expectations for pre-tax/pre-prevision earnings are not consistent with sub-par growth recovery. The sector faces regulatory risks, potential new capital adequacy requirements, and commercial real estate weakness. We like capital markets and prefer US to European/UK banks, but European insurers over US insurers.

Source: Morgan Stanley: Global Equity Strategy: The 2010 Global Outlook

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.