Now they tell me! and just two minutes after i bought all those foreeen thingys.... i am soooooooooooooooo pissed.
Monday December 4 9:43 AM ET
Morgan Stanley Cuts Global Stock Exposure
By Nick Olivari
NEW YORK (Reuters) - Morgan Stanley Dean Witter & Co., a top Wall
Street securities firm, on Monday told clients to cut back on stocks
worldwide for the second time in three months because of an expected
slowdown in profit growth.
Instead of equities, Morgan Stanley said investors should be buying bonds
and raising cash as the world economy slows faster than previously forecast.
``The world environment is getting tougher for equities'' even as equity
markets are still expensive, Jay Pelosky, who co-chairs Morgan Stanley's
Global Asset Allocation Committee, told Reuters.
Morgan Stanley reduced the stocks weighting in its global balanced model
portfolio to 68 percent from 72 percent and increased the bond component
to 21 percent from 18 percent. Pelosky also increased the cash weighting in
the portfolio to 6 percent from 5 percent.
``In this kind of market, investors want to be in the segments where downside risk in price is minimal,'' Pelosky
said.
The allocation to the alternative assets group, which includes commodities and real estate, was left unchanged at
5 percent. Pelosky last changed asset allocation on Sept. 18.
Global economic growth should slow to 3.8 percent in 2001, Pelosky said, a drop in Morgan Stanley's forecast
of 4.2 percent just three months ago. Pelosky said it was likely global economic growth could fall as low as 3.3
percent next year, and said there was a 40 percent chance of a hard landing, where worldwide economic
growth could slow to 2.5 percent.
``Investors should be cautious and defensive, focusing more on capital preservation than capital appreciation,
Pelosky said in a note to clients.
If the world economy grows at 3.8 percent, Pelosky forecasts average earnings per share growth of 10
percent; if world growth is 3.3 percent, earnings per share will grow by 5 percent, he said.
Morgan Stanley advised its clients to put most of the additional 3 percentage points in fixed income into
European government bonds, with a slight increase in U.S. investment grade corporate bonds. European
government bonds are 48 percent of the fixed income position in the model portfolio, said Pelosky.
Morgan Stanley reduced the stock weighting in the global equity model portfolio to 90 percent from 94
percent, and increased cash to 10 percent from 6 percent.
North American stocks account for 49 percent of the portfolio model compared with the 52 percent North
American component in the Morgan Stanley All Country World Index.
``There is a risk to the dollar,'' Pelosky said. ``The merger and acquisition boom and the powerful stock market
returns which attracted capital here are eroding and we will see less outflows from Europe to the U.S.''
Weakness in the dollar will make U.S. assets less attractive to foreign investors, meaning there could be fewer
buyers to send stock prices higher.
U.S. equity markets will get little help from the Federal Reserve, Pelosky said.
``We think the Fed will be leery of rescuing equity markets,'' he told Reuters. There is only ``a 40 percent
chance of the Fed easing in the first half'' of 2001.
Morgan Stanley cut the European component of the model portfolio to 28 percent from 31, compared with a
30 percent weighting in the Morgan Stanley All Country World Index. Stocks based in the region classified as
developed Asia, excluding Japan, were cut to 2 percent from 3 percent, compared with a 3 percent index
weighting.
The emerging markets component was left unchanged at 7 percent, while Japan was left unchanged at 14
percent. Both are overweight positions compared with the benchmark index.
As earnings growth slows, company and sector selection will be more important, Pelosky said. Areas he likes
are financials, healthcare, some European utilities and selective telecommunication stocks.
``It's a tougher environment and more challenging but there is still opportunity,'' Pelosky said.
Financial stocks include Chase Manhattan Bank Corp (NYSE:CMB - news) and Sumitomo Bank (8318.T) in
Japan. He also likes European insurance companies such as Belgian-based financial group Fortis (FOR.BR).
Health-related picks include HCA-Healthcare Corp. and Immunex Corp.
``Health care companies, particularly in the U.S. have less risk of earnings disappointments,'' Pelosky said.
European utilities that are attractive as defensive plays include French-based Suez-Lyonnaise des Eaux
(LYOE.PA).
Believing that the bad news is already priced in to several telecommunication stocks, Pelosky also likes
Japan-based Nippon Telegraph and Telephone Corp (9432.T) and U.S-based Sprint PCS (NYSE:PCS -
news).
Still, Pelosky is keeping one eye on technology and telecommunications issues, believing the sell-off that has
sent the Nasdaq Composite Index down 36 percent this year is only two-thirds complete.
``There is a very real possibility that retail investors will pull out of mutual funds leaving (money managers) to
sell the stocks,'' Pelosky said.
If that happens not only will prices in technology stocks fall but also as investors feel they have less wealth,
consumer spending will drop, causing the U.S. economy to decelerate at a faster rate, he said. |
