We are in a multi-year bull market for equities, especially emerging market equities, said panelists at Morgan Stanley Smith Barney’s 2011 outlook event Wednesday.
Charles Reinhard, global investment strategist with Morgan Stanley Smith Barney, said we’re in a multi-year bull market that started March 2009 and could last two years or longer. The cycle is being driven by inexpensive pricing, the looming recovery and 30 percent profit growth this year, according to Reinhard. Morgan Stanley Smith Barney, which is overweight in equities, also expects a large part of the growth to come from the emerging markets.
In fact, GDP growth in the emerging markets is at 6 percent, compared to 2 percent for developed countries, Reinhard pointed out. Trade is at an all-time high, and emerging market equities tend to outperform U.S. equities even when the U.S. economy is growing, he added. From March 2009 through September 2010, emerging market equities returned 67 percent, while U.S. equities gained 35 percent over the same period, according to the firm’s data. During the 10-year period ending in September, the Morgan Stanley Capital International emerging markets index returned 10.2 percent annually, while the S&P 500 lost 0.4 percent annually.
Emerging market consumers are also driving the global economy, accounting for 56 percent of the global “middle class.” By 2030, emerging market countries are expected to make up 93 percent of the global “middle class,” Reinhard said.
“We’re connecting, and we’re going to be more connected,” he said.
Morgan Stanley Smith Barney is also exploring the frontier markets, such as Vietnam, Sri Lanka, Ukraine, Nigeria and Argentina, to name a few. These countries currently make up 0.7 percent of market capitalization, said Jeff Applegate, chief investment officer at the firm.
“They really are the emerging markets of tomorrow,” he said.
Applegate believes the firm will want to allocate to frontier markets eventually, as this presents a new opportunity for clients.
This is not to say the firm is going to neglect equities in developed nations. David Darst, chief investment strategist, said not to be too underweight in great quality companies in the U.S., United Kingdom and Europe.
One of the best times to invest in equities is between a stock market crash and when the Fed tightens credit, Reinhard said. Another favorable time to invest is during mid-term elections, when stocks tend to rise 25 percent on average, not including dividends. At the moment, we’re in both of those windows.
Morgan Stanley Smith Barney has 18,000 financial advisors in its network.