I posted thoughts on oil from Morgan Stanley, here
- Oil update - Morgan Stanley says prices have likely bottomed
Lets give 'em another chance ... now on equities:
- If you're asking if its time to buy ... "Our response remains, 'not yet," says MS
- "In our view the current rally is likely to be short-lived and investors would be better-placed staying defensive rather than adding to equities"
- The gains in past weeks have "all the characteristics of a short-covering rally with the largest gains seen where the largest shorts were placed", and they're not "backed by fundamentals"
MS says there are 4 reasons not to buy:
1. Earning globally are trending lower, both in emerging ('sharply lower' earnings) and developed markets (signs of slowing)
2. Global debt is back at record highs ... global debt to GDP now higher than the GFC peak
3. Share price valuations above long-term averages levels
4. China still a "key risk" - "growth remains weak", policy responses have been about "kicking-the-can-down-the-road" instead of structural reform.
- MS also highlight trade issues, exports and imports both plummeted y/y
- Chinese debt is too high
MS do counter their argument (sort of, actually, not really) with a reason to buy:
- The low oil price
- In the past lower oil prices have stimulated economic growth & could again
- Buy on balance they reckon high debt levels are outweighing low price benefits. Bummer.
MS offer what to watch for when it is time to buy:
- A turn in earnings momentum
- Lower equity valuations to below average levels
- Better Chinese data
