MSCI Emerging Markets Index may climb to 985 by June 2010

June 19 (Bloomberg) -- Emerging-market stocks may rise a further 32 percent in the next year as earnings decline less and recover faster than predicted, Morgan Stanley said.

The MSCI Emerging Markets Index may climb to 985 by June 2010, 21 percent higher than the brokerage’s earlier prediction, strategists led by Jonathan Garner wrote in a report dated June 18. Still, the brokerage reduced its equity allocation in its recommended investment portfolio, saying the global economic recovery may face a “setback” in the short term.
“Our revised base case earnings forecast trajectory is for a slightly shallower and shorter earnings recession than our previous forecast,” Garner wrote. “We are tactically cautious here because we expect a lop-sided ‘W’ shape to the global economic recovery.”
The MSCI index for developing-market shares climbed 0.3 percent to 745.74 at 3:33 p.m. in Singapore, halting a five-day, 6 percent slump. The measure has rallied 32 percent this year, outpacing a 4.2 percent gain in the MSCI World Index.
Morgan Stanley reduced its equity allocation in its recommended investment portfolio to 54 percent of assets from 56 percent and advised investors to place 5 percent of funds in cash, higher than an earlier recommendation of 3 percent.
The emerging-market index could face a “correction” of between 17 percent and 33 percent from its recent peak over the next three months, Morgan Stanley said, citing its “technical, funds flow, factor model, and seasonal indicators.”


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