The team of strategic analysts at Morgan Stanley advises investors to avoid US stocks and bonds next year, and to look for better returns in Europe and Japan.
According to Arab Net, Morgan Stanley believes that monetary support is fading and high valuations will hinder the rise in US assets in 2022, even as growth improves and inflation moderates. The Wall Street giant emphasized that fundamentals are more attractive in Europe and Japan, where central bankers will be more patient and inflationary pressures are lower.
“We believe 2022 is about significant challenges of elevated valuations, policy tightening, unbridled investor activity, and higher inflation than most investors are used to,” wrote strategists led by Andrew Sheets on Sunday.
Morgan Stanley sees the S&P 500 ending 2022 at 4400 - about 6% below current levels. Its strategists expect 10-year bond yields to rise to 2.10% by the end of next year, up from 1.55% on Monday.
Inflation levels
The US bank strategists wrote that global inflation will peak this quarter and moderate over the next 12 months thanks to easier year-on-year comparisons and reduced supply chain stresses.
Their forecast comes amid a broader debate in the bank about the future of US monetary policy. Economists at Morgan Stanley expect the Federal Reserve not to raise interest rates until 2023, contrary to their CEO's more hawkish views.
According to the memo, the delay in raising interest rates will eventually lead to a weak dollar after a period of strength at the beginning of next year.
The bank urged investors to wait before considering investing outside US stocks and bonds, especially in emerging markets, and advised that they should wait until the dollar weakens before considering emerging market stocks and bonds.
In terms of currencies, the Morgan Stanley team favored the Canadian dollar and the Norwegian krone and expects significant stability in the yuan.
With regard to investing in commodities, the US bank prefers oil over gold.
