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- Morgan Stanley says the reopening of the economy brings "significant uncertainties" over where to invest.
- "Reopening does not mean a full return to pre-Covid consumptions," the analysts said in a note.
- The bank said it sees cyclical upside in three sectors: banks, capital goods, and materials.
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With the US economy on track for a summer rebound thanks to steady vaccine rollout and the landmark stimulus aid package, uncertainty about where investors should park their money abounds, Morgan Stanley said in a note Wednesday.
"Exiting the Covid-economy comes with significant uncertainties, and 'reopening' does not mean a full return to pre-Covid consumptions," analysts led by Adam Virgadamo, CFA, said in a note.
With global equities near all-time highs after being pummeled by a year of the global pandemic, Morgan Stanley said it now sees a cyclical upside in three sectors: banks, capital goods, and materials.
The analysts developed a tool that uses a framework to analyze stocks in the US, Europe, and Japan. The process found that certain cyclical stocks which have large overlaps with reopening plays have "rerated relative to the broader market such that a recovery seems reasonably well priced."
- Europe: Banks and Capital Goods
- Japan: Autos, Goods, Transports, and Materials
- US: A more diversified mix though leaning toward Energy, Banks, Capital Goods, Airlines, a mix of Tech
Morgan Stanley said that much of the reopening is priced in, although not equally across cyclical sectors. Discretionary and industrials, for instance, are aggressively pricing recovery and reopening while energy, financials, and materials have been slower to do so.
The cycle reset, the bank added, also lowered the premium on defensive stocks, with health care among the most defensive for stock opportunities. Pockets of real estate, such as offices, meanwhile continue to face challenges.
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