Morgan Stanley Raises US Stock Holdings 1st Time in 2 Years
New York, March 5 (Bloomberg) -- Morgan Stanley Dean Witter & Co. global strategist Robert J. Pelosky Jr. recommended investors buy U.S. stocks for the first time in two years, saying the country's equities may be undervalued.
U.S. companies he recommended include financial companies Citigroup Inc. and J.P. Morgan Chase & Co.; telephone company AT&T Corp.; and retailers Target Corp. and Staples Inc.
Investors who own stocks should increase holdings in U.S. companies to 50 percent from 48 percent, Pelosky said. He recommended investors have 28 percent of their holdings in Europe, 13 percent in Japan and 8 percent in emerging markets.
``Our investment philosophy is we want to be where bad news has been in prices,'' said Pelosky in an interview. Stocks have fallen and are nearly 10 percent undervalued, while in December they were overvalued 5 percent to 10 percent, he said.
Non-U.S. companies he recommended were Fortis AG, a Belgian- Dutch financial services company; Japan's Nippon Telegraph & Telephone Corp. and Sumitomo Bank Ltd.; Swiss pharmaceutical company Novartis AG, and Brazilian telephone company Embratel Participacoes SA.
``While market sentiment weakens and earnings disappoint, our global equity valuation model tells us not to be too bearish'', Pelosky wrote in a note to clients. ``We believe the Federal Reserve will ultimately succeed'' in keeping the U.S. economy growing.
Bond Holdings
Investors should increase holdings in European corporate bonds rather than sovereign debt since corporations tend to benefit more if the European Central Bank cuts interest rates, Pelosky said. He expected the ECB to cut rates 75 basis points by summer, more than some other analysts' expectations of 25 basis points.
He also recommended investors cut holdings of U.S. corporate high-yield bonds and move to emerging-market sovereign debt. A recent rally of high yield and a sell-off of emerging market debt after Turkey allowed its currency to devalue means emerging market sovereign debt offers better returns, he said.
Pelosky said his greatest concerns remain a U.S. recession and the lack of an alternative market that would ensure global growth. His forecast for 2001 global economic growth is 2.8 percent. Global earnings growth will probably slow to 1.5 percent annually, from more than 25 percent last year, he said.
Pelosky's overall recommendation was little changed from last quarter, with 68 percent in stocks, 24 percent in bonds, 4 percent in cash and 4 percent in alternative assets such as real estate.
On Dec. 4, he recommended investors cut stock holdings by 4 percent from 72 percent, saying stocks globally were not cheap and prices may drop further.
Investors should favor financial shares, especially Japanese and U.S. banks, telecommunications, European pharmaceuticals and insurance, and U.S. retailers, Pelosky said. |
