Morgan Stanley raises emerging markets stance to neutral from negative

A man walks past screen at the Indonesia Stock Exchange building in Jakarta, Indonesia -REUTERS

LONDON (Reuters): Morgan Stanley said on Monday that it had changed its stance on emerging bonds and currencies to neutral from negative following the recent sell-off, though it warned the backdrop for developing markets remained difficult.

 “After a significant sell-off, we close our bearish view on EM and shift into neutral gear,” Strategist James Lord said in a note to clients. “We can see the case for some temporary stability after a six-month bear market.”

Across high-yielding currencies, Morgan Stanley raised exposure to high yielders such as Argentina, Indonesia and Russia, while across local debt, its analysts upped Mexico.

“Overall, we see the case for local markets as stronger than credit, considering better positioning, valuations that are more consistently cheap across countries, and expected dollar weakness,” the Bank added.