Rolling with the Punches (Part II)
Jun 13, 2006
Takehiro Sato (Tokyo)
What’s new: Raising our outlook after new Jan-Mar GDP figures released
In light of the upward revision of Jan-Mar GDP and stronger-than-expected April CPI figures, we have raised our outlook on the economy/prices. We have raised our C2006 real GDP outlook to +3.2%, and expect a second straight year of 3% growth; however, our C2007 forecast is unchanged, calling for a slowdown to +2.3%.
Conclusions: Higher nominal growth to bring a more robust recovery in corporate earnings. Our revision reflects a higher GDP base effect and higher CPI figures of late. There are some concerns of a soft patch, but we remain bullish on the outlook for private-sector demand ahead. Although prices are rising quicker than expected, productivity gains leave little risk of inflation developing. Meanwhile, the upward revision to the GDP deflator should translate into an upward revision for corporate earnings.
Policy implications: Tightening of macro policies slack. F2009 now looks the most likely time for a consumption tax hike, in our view. Although stock prices are soft, our scenario is still for ZIRP to be lifted on July 14. However, we are still more cautious than the consensus on the pace of rate hikes thereafter.
Risks: Monetary policy, governmental changes, overseas economies. (1) Declining visibility on domestic/overseas monetary policy could raise the risk premium; (2) changes in government; (3) slowdown in US/Chinese economies (fears of inflation in the US); (4) ongoing oil price spike; and (5) further plunge by the dollar.
We raise our economic price outlook after recent data
Following the release of second preliminary Jan-Mar GDP figures, we have revised up our 2006-07 economic/price outlook. For 2006, we have lifted our real GDP growth forecast to +3.2%, and expect a second straight year of 3% growth, but our 2007 forecast is unchanged, at +2.3%. In light of recent price trends and upcoming revisions for prices/charges in various industries, we have also upped our 2006 price outlook to +0.5%. Our basic stance is unchanged: bullish on the economy but cautious on prices. We remain more bullish on the economic outlook, but more guarded on prices, than the consensus forecast.
Growth ahead should track or top potential growth rate
Jan-Mar real GDP was revised up, led mainly by capex. The inventory contribution and net external demand were revised down, so the growth drivers appear to be shifting to domestic private-sector final demand. Both the GDP deflator and nominal GDP were also revised up. In all, the growth pattern looks benign.
Going forward, the risk of a soft patch akin to 2004 must be considered, as asset prices are correcting globally and inventories are building for high-tech goods. However, we see only a small risk of another soft patch because (1) of such structural changes as a tighter labor market in Japan; (2) the asset market and prices, both barometers of the economy, have improved remarkably since 2004; and (3) companies have learned the lessons of 2004 after suffering mightily after the summer Olympics. Indeed, corporate capex plans remain optimistic for F2006, and companies are expected to stockpile inventory in response to stronger internal demand and expectations for higher prices. As well, nominal incomes continue to roll along in stable fashion, up around 1-2% YoY, and confidence in the employment situation appears to be strengthening. We accordingly see little chance of a near-term dip in consumer spending. As a result, we think that the Japanese economy is likely to continue to grow in line with, or even higher than, the potential growth rate.
Even if prices top expectations, we see little chance of inflation developing
While inflationary concerns have dropped in the US recently, productivity growth spurred by accelerated capex plans likely hold the key for consistent growth in Japan while prices are stable. We are more optimistic on this point than the consensus.
From the bottom-up perspective, there is an increasing trend for the rise in raw materials/energy prices to be passed on to final demand goods. Also, April marked the start of the new fiscal year, and service prices were broadly revised upwards. This led to the April core CPI inflation rate topping our forecast, and it looks to be high for the immediate future at around +0.6-0.7% YoY. From the top-down perspective, however, we expect the globalization of the economy and the productivity improvements won over the past few years by reform efforts in both the public and private sectors to work against upwards pressure on prices. So, although we are revising our outlook for the core CPI inflation rate upwards at this time, it is still cautious relative to the consensus. However, this cautious outlook for prices still doesn’t mean that we expect deflation to return. On the contrary, this combination of solid domestic private-sector demand and stable goods prices is positive, in our view, and should support a steady rise in asset markets.
The GDP deflator looks to continue to come under downward pressure even after Apr-Jun due to the high crude oil prices and the import deflator remaining high. In response to the upwards revision in the core CPI inflation rate, and our higher forecasts for the personal consumption deflator, we have raised our forecasts for the GDP deflator to -0.7% for 2006 and +0.5% for 2007. Our global economics team’s revised forecasts for 2007 oil prices and forex trends lead us to believe that the GDP deflator will turn positive in Jan-Mar 2007, a quarter earlier than our previous outlook, thanks to an upward revision of the personal consumption deflator. As a result, we are raising our forecast for nominal GDP to +2.4% for 2006, and to +2.8% for 2007.
Substantial room for upwards revisions to corporate earnings
In macro terms, the upwards revision of the GDP deflator means an upward revision to nominal income. However, despite the first average increase in base salary in five years, firms have been careful to hold labor costs down, and unit lever costs are unlikely to rise by that much. If so, the upside expected for the GDP deflator should translate into an upward revision for corporate earnings. From the bottom-up perspective, on top of the rise in sales volumes to date, we think that the rise in merchandise prices we have seen could raise price-based sales, heralding the start of a new phase. As a result, we are raising our F2006 top-down corporate earnings outlook (based on Corporate Statistics, market cap of ¥1billion+) from 14% to +17% YoY.
F2009 now looks the most likely time for a consumption tax hike, in our view. At the same time, we expect the deflation gap to continue to shrink under annualized +3% growth, so the current GDP revision should provide a boost to the BoJ. Although prices are soft, our main scenario is still for ZIRP to be lifted after the Tankan, on July 14. However, we are still more cautious than the consensus on the pace of rate hikes thereafter. We expect the pace of macro tightening to be slack overall, and not significant enough to hurt near-term growth prospects.
On the other hand, given the above-noted strong domestic private-sector demand, we expect substantial upward revisions to corporate earnings forecasts at the F1H06 earnings briefings, so we think that the equity market will get its confidence back soon.
Important Disclosure Information at the end of this Forum
Inflation and the Volatility Ghost
Jun 13, 2006
Heloisa Marone (New York)
In recent weeks, I have heard several stories from market participants attempting to explain the increase in volatility in emerging markets in general and Brazil in particular. From unconvincing stories on domestic politics driving uncertainty in Brazil to more convincing (albeit less tangible) risk-reduction arguments, all seem to point to a scenario where current volatility is expected to be short-lived.
The goal of this note is not to propose yet another potential explanation for volatility but to point out what appears to be a disconnect between recent market movements and inflation and interest rate expectations. This is especially important, as some investors are starting to wonder whether there might indeed be negative signs in Brazilian fundamentals that they may have missed and that could be driving the recent volatility, or whether we might be changing our view on Brazil’s outlook in face of the current bout of volatility.
Although we believe that fundamentals are not driving volatility in the Brazilian markets, there is still the possibility that a sustained period of high volatility could increase risk aversion and uncertainty, and this change in sentiment could then have an adverse effect on expectations, which could affect decisions and ultimately inflation and the real economy. Indeed, in the most recent COPOM minutes, the central bank appears to be raising its vigilance level. It argues that volatility, even if temporary, could add a higher degree of uncertainty to inflation projections.
January 2007 DI Futures reached 15.64% on May 24, after trading below 14.8% in the period between April 17 and May 9. Meanwhile, 2006 year-end IPCA inflation expectations remained stable at 4.3% between the May 19 and June 2 central bank surveys, having previously dropped for seven consecutive weeks from 4.57% in March. Similarly, year-end Selic rate forecasts were stable at 14.25% between the May 19 and June 2 central bank surveys, having previously been stable at 14% for four consecutive weeks.
And while expectations on the average Selic rate have shown a modest upward movement — suggesting that market players are expecting a slowdown in the pace of rate cuts until the end of this year — the move has been too gentle to justify the larger swings priced in the short-dated DI Futures.
Whatever the triggers are of recent market volatility, we find that it is not possible to explain this volatility by only looking at movements in market expectations on inflation and interest rates. Furthermore, even if we believe that volatility could bring a certain degree of uncertainty to future projections, we still think that the inflation outlook remains positive.
Attention to volatility around the globe and fundamentals abroad have outshone recent positive domestic inflation releases. São Paulo’s Inflation (FIPE) dropped 0.22% in May — the lowest monthly result since 2000; the IGP-M has shown deflation in year-over-year terms in the last two consecutive months (-0.9% in April and -0.3% in May) — a drop of more than 1,000bp from last April; and the IPCA reached 4.2% year over year in May — the lowest result since mid-1999.
But what is behind the sharp decline in inflation?
It is undeniable that real appreciation has played a key role in depressing prices in the last year. Tradable goods have fallen at a much faster rate than non-tradable goods. Annual changes to tradable goods prices moved from around 5.9% in May 2005 to around 0.6% in May 2006. Tradable goods annual inflation rates moved from 7.2% to around 5.9% in the same period.
And while the BRL lost ground against the USD in the last three weeks, moving from 2.06 in May 09 to the low of 2.40 on May 24, BRL/USD is still trading at around 2.25. This brings the BRL back to September and early December 2005 levels — which were then the strongest levels since early 2001. We therefore reemphasize our assertion that the effect of the recent depreciation in the BRL on inflation and inflation expectations should be limited (see Brazil: Rate Reduction Slowdown, This Week in Latin America, May 29, 2006).
More recently, the decline in inflation rates was a consequence of a sharp drop in alcohol fuel prices coinciding with the new sugar cane harvest that put an end to the high fuel prices cycle that began in late 2005. But the main driver to lower inflation rates since early this year has been the deflation trend in food prices — particularly in produce and semi-processed prices.
A simple exercise indicates that, had we excluded the food group (that accounts for more than 20% of the consumer basket), the variation of the IPCA would have been on average 0.11 percentage points higher than the actual 0.27% average of the last four months.
And the overall inflation outlook remains positive — although some of these recent positive developments stem from temporary factors, and the lagged fiscal and monetary effects may produce additional inflationary pressure in the months to come by increasing aggregate demand.
Volatility has generated some puzzling behavior in the market. While we cannot explain definitively what might be triggering this volatility, we find that it is not possible to explain the recent volatility by looking only at movements in market expectations on inflation and interest rates. Furthermore, even if we believe that volatility could bring a certain degree of uncertainty to future inflation projections, we still think that the inflation outlook remains positive.
Important Disclosure Information
at the end of this Forum
The Coming Credit Slowdown
Jun 13, 2006
Chetan Ahya (Mumbai)
What’s new? India is witnessing one of its longest credit cycles of the past 35 years. Bank credit growth has accelerated to 31% from the bottom of 10.7% in September 2003. Indeed, India has cumulatively added credit of US$180 billion since January 2003.
Conclusion. We believe that the credit cycle is about to reverse, considering the steady rise in real rates over the past few months, the increasing supply constraint in banks’ balance sheets (i.e., low deposit growth), and the RBI’s measures to control aggressive credit by increasing the risk weighting on consumer credit lending, housing loans, commercial real estate and capital market-related advances.
Implications. We believe that debt-funded consumption growth, which has been at the heart of the above-trend GDP growth over the past three years, will be hit by the rise in the cost of capital and the consequent soft landing of the credit growth cycle.
Current credit cycle the longest since the 1970s
Low real rates and a sharp rise in bank credit have been at the heart of India’s growth acceleration story over the past three years. Nominal bank credit growth has accelerated from the bottom of 10.7% in September 2003 to 31% currently. The 12-month moving average of nominal credit growth has been accelerating for 27 straight months. Indeed, the current credit cycle is already the longest credit cycle India has witnessed since the early 1970s. Commercial credit to GDP has increased to 47% as at end-May 2006 from 35% in January 2003. Credit outstanding has increased by almost US$180 billion to US$380 billion over the past three years.
Credit cycle is at the peak, slowdown is coming
We believe that the credit cycle is about to reverse, considering the lagged effect of the steady rise in real rates over the past few months, the increasing supply constraint in banks’ balance sheets (i.e., low deposit growth), and the RBI’s measures to control aggressive credit by increasing risk weights for banks lending to select sectors.
Rising real rates. The trend in real rates has been a good leading indicator for India’s credit growth cycle. In the current cycle, due to the high level of financial integration, interest rates in India have followed a similar trend to those in the rest of the world. A decline in real rates (10-year bond yield) from 6.1% in March 2002 to negative 1.9% in September 2005 supported a big acceleration in real credit growth to 27% currently from 5.8% in September 2003. However, due the steady reversal in the global (particularly the US) cycle and consequently the Indian rate trend, we believe that credit growth is likely to reflect a slowing trend over the next six months. We have observed a significant lag in the trend in bank credit growth compared with the real 10-year yield trend as financial intermediaries tend to be slow in reflecting this trend in lending rates. For instance, in the current cycle, the market-oriented 10-year government bond yield started to move up from the second half of 2004, while banks’ lending rates began increasing only over the past five months, which we believe will now start weighing on borrower behavior.
Supply constraint in banks’ balance sheet. Not surprisingly, low real deposit rates have also meant a relatively slower time deposit growth in the banking system. Aggregate bank deposit growth has been 16% on average over the past 20 months. This compares with the credit growth average of 29% in the same period. With the bank credit-deposit ratio already at 70%, banks’ capability for credit creation going forward is constrained by them having to meet the minimum statutory liquidity ratio of 25%. As a result, banks will find it difficult to grow their credit book by more than 20-22% in the fiscal year ended March 2007, in our view. The government is working on reducing the statutory liquidity ratio for banks to create the room for the credit-deposit ratio to rise further. However, this is unlikely to help much, considering that the government will still have a large fiscal deficit funding requirement. If banks do reduce the government bond portfolio below 25% of deposits, it could result in sharper rise in government bond yields, in turn hurting public-sector banks as they hold about 30% of their assets in government bonds, with an average maturity of about five years.
RBI’s keenness to slow credit growth. The RBI has clearly been concerned with the strong credit growth creation in the retail and real estate sectors. Over the past three years, only 44% of the incremental credit disbursed flowed to the industrial and agriculture sectors. In a bid to slow this aggressive credit growth in sectors other than industry and agriculture, the RBI has initiated a number of restraining measures, including increasing the risk weighting for commercial real estate-related loans to 150% from 100%, for housing to 75% from 50% and for consumer loans (unsecured credit and credit cards) to 125% from 100%. The RBI has also increased the mandatory standard loan provisioning in specific sectors (personal loans, capital market-related loans, residential loans greater than Rs2 million and commercial real estate loans) to 1% from 0.4%.
We believe that the RBI’s concern is justified, considering that about 50% of banks’ loan books have been created in the past three years while the bank credit risk pricing curve has been flattening. Indeed, during the same period, banks have reduced the provisioning of loans significantly. We believe that the underlying asset quality of banks is likely to have deteriorated, considering the rapid pace of growth over the past two years, with the banks’ risk assessment systems — particularly in lending for sectors other than industry — still not fully in place. Indeed, India’s current credit expansion qualifies as a ‘credit boom’ using the IMF definition (a credit expansion in a given country is a boom if it exceeds the standard deviation of that country’s credit fluctuations around trend (using a Hodrick Prescott filter) by a factor of 1.75). The IMF’s study highlights that this filter helps to identify emerging market economies that are at significant risk of facing a credit cycle slowdown.
Possible scenarios for credit cycle
The key possible outcomes for the credit cycle are as follows:
Soft landing. This is our base-case scenario. We believe that credit growth will decelerate to about 18-20% by end of the financial year (i.e., March 2007) from the current 31%, driven by factors mentioned above.
Party goes on. We believe that this scenario (not a probabilistic outcome) will need a decline in real interest again with much larger capital inflows. While this may help to ensure continued strong GDP growth, it could result in much sharper widening of the current account deficit, increasing credit quality risks and further fuelling property prices, raising the risk of an eventual hard landing.
Hard landing. If India does witness large portfolio outflows for a long period of 9-12 months, it would result in a sharp slowdown in capital inflows and a sharp rise in real interest rates, causing a hard landing for the credit growth cycle.
We believe that debt-funded consumption growth, which has been at the heart of the above-trend GDP growth over the past three years, will be hit by the rise in the cost of capital and consequent soft landing of the credit growth cycle.
Important Disclosure Information
at the end of this Forum
Jun 13, 2006
Gerard Minack (Sydney) and Mark Skocic (Sydney) and Toby Walker (Sydney)
Recent economic news has surprised on the upside. Ironically, it has reinforced our view that the domestic growth risks are skewed to the downside in 2007. Our new economic forecasts reflect this peculiar mix. We’ve revised up our GDP forecasts to 2.5% and 1.1% for 2006 and 2007, respectively, from 2.2% and 0.9% previously. However, we’ve cut our 2007 domestic demand forecast to just 0.2% from 0.5% previously.
We expect that several factors will slow domestic demand through 2007. 1) ongoing weakness in residential construction; 2) the approaching top in the business investment cycle; 3) mounting pressure on household-sector finances, which we expect will mute fiscal stimulus; 4) a disappearing terms-of-trade assist; and 5) a softer labor market, as the labor-intensive consumer sectors slow. As is usual, there are risks either way around our base case. If consumers decide to spend all their fiscal gifts, then demand will be higher. Conversely, we assume that global growth holds up; it may not.
Policy-makers won’t stand by as growth weakens. We expect to see both looser fiscal policy and lower interest rates next year. While the near-term call on the RBA is close, we expect a run of cuts next year. Lower rates point to a lower A$.
Economic weakness points to earnings weakness — which would be poison to an equity market that has been driven by an earnings bubble. We recently reiterated our long-term bear view: specifically, an ASX 200 at 3,000 in 2010 (see ASX200 Doubles in Three Years: How Long Until It Halves? May 10, 2006). The earnings downside in our economic forecasts is a step along that bearish medium-term outlook for the market.
The balancing act
The past two years in Australia have seen a macro-balancing act between, on the one hand, a consumer struggling under the burden of negative cash flow and, on the other hand, business and (federal) government sectors enjoying the fruits of a once-in-a-generation commodity windfall.
We have been bears, expecting the growth drag from consumer adjustment to overwhelm the positives. Our forecast revisions — which involve moderate upgrades to the 2006 outlook — are an admission that the positives continue to outweigh the negatives.
In particular, we underestimated the gush of cash heading into Canberra’s coffers, and the resultant ability of the federal government to loosen fiscal policy. Cycle-related revisions have improved the budget balance by 2-3% of GDP in the past two years. This has allowed the government to announce discretionary policy loosening of over 1% of GDP in each of the past four years (including the 2006-07 Budget), and still report large surpluses.
To be fair, missing this fiscal boost is not the only factor that has forced us to revise our 2006 forecast, but it is the most important. We have revised up our 2006 GDP estimate from 2.2% to 2.5%. The biggest component revision was to consumer spending (1.3% to 2.5%). We have also revised up our private investment forecast to 4.6% from 2.2%. The major negative revision has been cutting forecast export growth to 4.9% from 7.9%.
Why the balance may tip
The most important call, in our view, is for domestic demand next year. We expect domestic demand growth of only 0.2% in 2007 (was 0.5%), down from 3.1% this year.
Below are five factors that we expect will slow domestic activity through the next few quarters:
Weakness in residential construction. Notwithstanding falling vacancy rates, we expect that residential investment spending will fall next year.
A turn in business investment spending. Most leading indicators now point to significantly slower investment spending growth next year, if not an outright decline.
The pressure remains on household sector finances. Partly because consumer spending has held up better than we expected, household finances have become more not less stretched. Household leverage is at an all-time high, household saving remains negative, and the debt-service burden hit a new all-time high in the March 2006 quarter. Because of that pressure, we expect that most of the upcoming tax cuts — both those already announced, and the big tax cuts we’re forecasting for next year — will be saved. The biggest single upside risk to our forecasts is that we are wrong on that point, and that all the tax cuts get spent
The terms of trade windfall is likely to moderate. This is not such a brave forecast: remember that the windfall comes from the terms of trade improving — that is, from the terms of trade change, not their level. Through the course of 2005, real domestic income grew by 2.7 percentage points faster than GDP. In our forecasts, this gap is likely to reverse in 2007 — even though we expect only a moderate (and temporary) deterioration in the terms of trade
Employment weakness. Most leading indicators of employment are moderating. This is no surprise: the rebalancing of growth from consumers to business and exports has swung the economy’s centre of gravity from job-intensive sectors to capital-intensive sectors The result is slowing employment growth.
Versus these slowdown factors there is clearly one big positive in the outlook: the prospective lift in mining-related export volumes. We have strong mining-related export volumes in our forecasts. This is part of the reason why we have significantly stronger GDP growth next year than we do domestic demand (1.1% versus 0.2%).
The most contentious element of our forecasts is the slowdown — the market implications are, in our view, straight-forward and unsurprising (given that macro view). We expect the RBA to cut rates and fiscal policy to be loosened further. Because the windfall from the terms of trade improvement disappears, the expected loosening in fiscal policy will actually push the federal budget into deficit in our outlook.
We expect the RBA to cut rates by 150-200bp through the downswing. We expect the first cut i in the March 2007 quarter.
Consistent with our global FX team’s view, we expect that the A$ will trade down to around mid-60¢ against the US dollar by the middle of next year.
But the most important implication of this growth slowdown, in our view, is the impact on corporate earnings. We expect a double-digit decline in the top-down measure of earnings.
Such an earnings decline would be poison to an equity market that is now, in our view, riding an earnings bubble. At the moment, we are seeing reported earnings significantly outpace the top-down measure of earnings. We suspect that this leverage will work both ways: it may be that reported earnings will fall faster than the top-down numbers we have forecast.
Important Disclosure Information
at the end of this Forum
The information and opinions in this report were prepared or are disseminated by Morgan Stanley & Co. Incorporated and/or Morgan Stanley & Co. International Limited and/or Morgan Stanley Japan Securities Co., Ltd. and/or Morgan Stanley Dean Witter Asia Limited and/or Morgan Stanley Dean Witter Asia (Singapore) Pte. (Registration number 199206298Z) and/or Morgan Stanley Asia (Singapore) Securities Pte Ltd (Registration number 200008434H) and/or Morgan Stanley & Co. International Limited, Taipei Branch and/or Morgan Stanley & Co International Limited, Seoul Branch, and/or Morgan Stanley Dean Witter Australia Limited (A.B.N. 67 003 734 576, holder of Australian financial services licence No. 233742, which accepts responsibility for its contents), and/or JM Morgan Stanley Securities Private Limited and their affiliates (collectively, "Morgan Stanley").
Conflict Management Policy
This research observes our conflict management policy, available at www.morganstanley.com/institutional/research/conflictpolicies.
This report does not provide individually tailored investment advice. It has been prepared without regard to the circumstances and objectives of those who receive it. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages them to seek a financial adviser's advice. The appropriateness of an investment or strategy will depend on an investor's circumstances and objectives. This report is not an offer to buy or sell any security or to participate in any trading strategy. The value of and income from your investments may vary because of changes in interest rates or foreign exchange rates, securities prices or market indexes, operational or financial conditions of companies or other factors. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized.
With the exception of information regarding Morgan Stanley, reports prepared by Morgan Stanley research personnel are based on public information. Morgan Stanley makes every effort to use reliable, comprehensive information, but we do not represent that it is accurate or complete. We have no obligation to tell you when opinions or information in this report change apart from when we intend to discontinue research coverage of a company. Facts and views in this report have not been reviewed by, and may not reflect information known to, professionals in other Morgan Stanley business areas, including investment banking personnel.
To our readers in Taiwan: This publication is distributed by Morgan Stanley & Co. International Limited, Taipei Branch; it may not be distributed to or quoted or used by the public media without the express written consent of Morgan Stanley. To our readers in Hong Kong: Information is distributed in Hong Kong by and on behalf of, and is attributable to, Morgan Stanley Dean Witter Asia Limited as part of its regulated activities in Hong Kong; if you have any queries concerning it, contact our Hong Kong sales representatives.
This publication is disseminated in Japan by Morgan Stanley Japan Securities Co., Ltd.; in Canada by Morgan Stanley Canada Limited, which has approved of, and has agreed to take responsibility for, the contents of this publication in Canada; in Germany by Morgan Stanley Bank AG, Frankfurt am Main, regulated by Bundesanstalt fuer Finanzdienstleistungsaufsicht (BaFin); in Spain by Morgan Stanley, S.V., S.A., a Morgan Stanley group company, which is supervised by the Spanish Securities Markets Commission (CNMV) and states that this document has been written and distributed in accordance with the rules of conduct applicable to financial research as established under Spanish regulations; in the United States by Morgan Stanley & Co. Incorporated and Morgan Stanley DW Inc., which accept responsibility for its contents. Morgan Stanley & Co. International Limited, authorized and regulated by Financial Services Authority, disseminates in the UK research that it has prepared, and approves solely for the purposes of section 21 of the Financial Services and Markets Act 2000, research which has been prepared by any of its affiliates. Private U.K. investors should obtain the advice of their Morgan Stanley & Co. International Limited representative about the investments concerned. In Australia, this report, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act.
Trademarks and service marks herein are their owners' property. Third-party data providers make no warranties or representations of the accuracy, completeness, or timeliness of their data and shall not have liability for any damages relating to such data. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of MSCI and S&P. Morgan Stanley bases projections, opinions, forecasts and trading strategies regarding the MSCI Country Index Series solely on public information. MSCI has not reviewed, approved or endorsed these projections, opinions, forecasts and trading strategies. Morgan Stanley has no influence on or control over MSCI's index compilation decisions. This report or portions of it may not be reprinted, sold or redistributed without the written consent of Morgan Stanley. Morgan Stanley research is disseminated and available primarily electronically, and, in some cases, in printed form. Additional information on recommended securities is available on request.