Brazil
Growth Outlook – Think Outside of the Box
March 24, 2009

By Marcelo Carvalho | Sao Paolo

Our recent 2009 Brazil growth forecast of -4.5% has surprised many. But it starts to sound less extreme once seen against a bleak global backdrop, and in a historical context. Our Brazil forecast is surely well below consensus. What is it that we think that many analysts and Brazil watchers are missing? Our thesis is simple. First, Brazil is more sensitive to the global environment than most analysts seem to recognize. Second, the global picture is bleak. Third, as a consequence, Brazil’s downturn is likely to prove deeper than most observers seem prepared for.

Think Outside the Box

Our recent growth forecast revision may sound too bearish. Last week we revised down our 2009 Brazil real GDP growth forecast to -4.5% from zero before, amid broad downward revisions throughout the region (see “Latin America: Lengthening the Downturn”, EM Economist, March 20, 2009).

This is not the first time our growth forecast is met with market skepticism. We found little sympathy when we cut our already below-consensus 2% forecast to zero. But the market consensus has steadily moved down since December. By now, a zero growth forecast has become mainstream. Sadly, a zero growth forecast for this year now actually looks too optimistic, in light of recent poor growth data and a challenging global outlook.

What is wrong with the consensus view? Brazil watchers have enjoyed several years of strong growth performance in Brazil amid global abundance. In our view, those years were the exception, not the rule. As the global economy now faces the worst crisis in many decades, ignoring the global context can prove to be a serious mistake. We suspect that observers have not yet fully realized how severe the growth downturn proved around the turn of the year.

Point #1: Brazil Is Sensitive to the Global Economy

The global environment affects Brazil through several channels. Analysts in the ‘decoupling’ camp – if there are any still left these days – would argue that Brazil is a relatively closed economy. Indeed, Brazil’s exports represent less than 15% of its GDP. But we would make two warnings here. First, growth in Brazil’s exports had been remarkable over the last several years, on the heels of volume-boosting global demand expansion and booming commodity prices. These trends have now reversed sharply. Second, besides trade, the global crisis is now hitting Brazil through at least three other channels: capital inflows, credit conditions and sentiment (confidence).  

The 4Q08 GDP U-turn illustrates Brazil’s exposure to global swings. Brazil’s growth collapse in 4Q08 should dispel any remaining notion that Brazil is immune to the global downturn. After growing at an average sequential annualized pace of 6.7% during the first three quarters of 2008, Brazil’s real GDP contracted at a sequential annualized pace of 13.6% in 4Q – the worst quarter on record.

Brazil’s long-term correlation with global growth appears stronger than observers seem to recognize. To be sure, this is not a straightforward one-to-one correlation. But data over the last 50 years suggest that booms in global growth often provide support for strong growth in Brazil, while Brazil’s recessions often coincide with a tough international environment. 

Brazil and global growth: low alpha, high beta? A simple regression of Brazil’s against global growth would seem to suggest a negative alpha and a high beta, judging from annual data since the 1980s. A negative alpha means that Brazil’s growth would tend to fall into negative territory when the global economy stalls. A high beta means that growth in Brazil is more volatile than average global growth – Brazil’s growth would overshoot global growth in sufficiently good times, and undershoot in bad times. In all, once one considers historical patterns and the global outlook, our -4.5% growth forecast does not seem so difficult to believe.

Quarterly data tell a similar story of strong sensitivity to global growth. Brazil’s real GDP growth seems strongly sensitive to swings in real GDP growth in OECD economies, with a time lag of about a quarter or so. Given poor prospects for OECD growth, it would be surprising if Brazil did not fall into significant recession in 2009 – if quarterly history over the last two decades is any guide.

Also, beware of Asian aftershocks. There is a strong – if overlooked – empirical correlation between Brazil’s industrial production and China’s total exports (see “Latin America: The Asian Aftershocks”, EM Economist, February 13, 2009). Prospects look challenging, if we were to extend recent trends. China’s total exports plunged 21.1%Y in January-February. That was worse than expected, and marked an unprecedented decline.

Point #2: The Global Picture Is Bleak

The current downturn is turning out to be the worst global crisis since the Great Depression. Global growth forecasts have been cut back repeatedly over the last several months. For instance, the IMF now projects the global economy to contract by somewhere in the range of 0.5% to 1.0% in 2009 – the first such decline in 60 years. This is down from an IMF growth forecast of +2.2% as of November 2008. The Fund now considers that advanced economies will suffer deep recessions in 2009, and argues that growth in emerging economies will be impeded by financing constraints, lower commodity prices, weak external demand and associated spillovers to domestic demand (see IMF Survey online, March 19, 2009). The global growth downturn is proving to be sudden, severe and synchronized.

The Morgan Stanley global economics team currently foresees a global contraction in the range of 1-2%. Recent downward revisions take into account the ongoing fall in global trade, and its effects on output, capex and employment (see “Still Sinking and Synching”, The Global Monetary Analyst, March 18, 2009). There is no guarantee that the global forecast-cutting cycle is over. Downside risks remain.

A prolonged global growth recession remains a risk, if eventual global recovery proves elusive. Most of our recent global growth revisions reflect mainly recent worse-than-expected growth data. The picture would start looking more worrisome if the tentative global recovery penciled in for late 2009 gets pushed into 2010.

Brazil’s growth in 2009 may be the worst in decades – but so is the global outlook. If our Brazil real GDP growth forecast of -4.5% proves right, 2009 will bring one of the worst recessions in Brazil’s recorded history. Only twice in recent decades did Brazil see a contraction beyond the 4.0% mark: -4.2% in 1990 and -4.3% in 1981. On both occasions, global growth was soft, but still positive. By contrast, global growth in 2009 should prove outright negative.

Point #3: Shaper Downturn than Most Seem Ready For

The statistical growth carry-over for 2009 in Brazil is already -1.5%. That is, if sequential quarter-on-quarter real GDP growth were zero throughout 2009, the average real GDP level in 2009 would be down 1.5% from the 2008 average real GDP level. This is because the growth collapse in 4Q08 brought the economy well below the average level of 2008 as a whole. So, 2009 faces an uphill battle as it already starts with a negative carry-over from 2008.

Our Brazil forecast assumes negative sequential growth in 1H09, and a flat economy in 2H. How does the math work to get to -4.5%? Sequential real GDP growth in 4Q08 was -3.6%Q (not annualized). Partial data suggest yet another negative sequential reading in 1Q09. We assume -1.8% (quarter-on-quarter, not annualized) in 1Q, -1.6% in 2Q, and then zero in 3Q and 4Q. In sum, the economy continues to contract in 1H09, although at a slower pace than in 4Q08.

Last in, last out. A key difference in our forecast against the consensus view is that we see further weakening ahead. Most observers seem to assume sequential recovery in the coming quarters – often starting as soon as in 2Q09. By contrast, we feel skeptical that Brazil can deliver a true growth recovery much before the global economy rebounds. Brazil may have been late to the global downturn, but we would be surprised if it were the first to convincingly get out of recession.

Can 2Q turn out positive? It could. But then 3Q could just as easily prove negative. The economy rarely follows a straight line. Instead, it often wobbles. So, the quarterly path may well follow a ‘W’ shape in the end. We do not know. The precise quarterly path is uncertain. But the broad growth assumption is clear in our mind – the economy shrinks in early 2009, and then eventually stabilizes at some point in 2H.

In other words, watch out for head fakes. False dawns are common in recessions. Do not confuse a technical rebound with sustained recovery. We doubt that Brazil can deliver sustained faster growth until the global economy finds firmer footing.

Changes in inventories can add noise to the quarterly path. The 4Q growth fall was the worst ever in Brazil’s quarterly record-keeping. It was a black swan event (see “Brazil: Growth Black Swan”, EM Economist, February 20, 2009). It was so extreme that it is unlikely to repeat. Note that our forecast does not just extrapolate 4Q – doing so would result in much weaker figures. 4Q was so bad that in part it probably reflected an inventory correction – although the national accounts do not seem to tell a straightforward inventory story.

Let us offer two words of caution on the inventory story, though. First, the inventory correction does not seem over yet. Survey data from FGV indicate that about 18.5% of firms still judge their inventories to be excessive, as of February. This is down from a recent peak of 21.8% in January, but still up from an average reading of around 5% in recent years. Second, even after the inventory correction is over, output will not quickly rebound to pre-crisis levels, in our view. Instead, it will likely settle at lower levels than before, despite policy efforts to cushion the downturn.

Domestic demand is set to fall, but investment is likely to collapse, from the demand side of the economy. While weakening in 2009 will be broadly based across the economy, investment will probably be hit the hardest, as firms cut back their capital expenditure plans sharply. Indeed, investment is historically ‘high-beta’. That is: it jumps high in the upswing, but falls the most in the downturn. Investment already fell 9.8%Q (not annualized) in 4Q, after several quarters of double-digit growth. Likewise, consumption was already down 2.0% last quarter, after a long period of steady expansion.

Industry is expected to be hit the hardest, from the supply side of the economy. Our forecast sees industrial output falling 10% in 2009, which compares with declines of 8.2% in 1990 and 8.3% in 1981. We assume that services contract 2.0% in 2009, against declines of 0.8% in 1990 and 2.5% in 1981.

Bottom Line

Thinking outside the box. Brazil is more sensitive to the global picture than is often realized. And the global picture is bleak. So, Brazil’s downturn is likely to prove sharper than most people seem ready for. Our -4.5% growth forecast for Brazil in 2009 looks less aggressive once seen against a global recession of historical proportions.

Important Disclosure Information at the end of this Forum

United States
Review and Preview
March 24, 2009

By Ted Wieseman | New York

Treasuries posted huge gains, led by the belly of the curve, over the past week, taking yields except at the long end to two-month lows; this occurred as the Fed surprised the market with an aggressive expansion of its quantitative easing policy, adding US$300 billion in Treasury purchases concentrated in the 2-year to 10-year sector over the next months, US$750 billion to the MBS purchase program by year-end to the previous US$500 billion commitment by mid-year, and US$100 billion to planned agency buying by year-end on top of the previous US$100 billion plan by mid-year.  Prior to this announcement, even with the Fed having been steadily engaging in heavy MBS purchases since the beginning of the year, mortgage rates were not coming down, as the backup in Treasury yields had offset the impact of the MBS buying, leaving MBS yields prior to Wednesday’s announcement higher than where they started the year.  Not only did the huge impact the Treasury purchase plan had on Treasury yields sharply reverse this prior negative offset, but the enormous boost to MBS purchases – which should leave the Fed owning about a quarter of the total agency MBS market by year-end, and the Fed, Treasury, and GSEs combined more than half of the market – helped mortgages outperform the Treasury rally, sending yields back towards the record lows briefly hit in early January in the initial wave of exuberance following the start of Fed buying.  Agency debt also tore higher and outperformed Treasuries, which was important both for the direct impact it is having on the financial wherewithal of the agencies to add to the Fed’s efforts by boosting their mortgage purchases and for the substantial indirect support it is having on bank funding costs, given the tight linkages that have developed between the agency and TLG debt (FDIC-guaranteed bank bonds) markets.  This much more aggressive Fed action was made all the more important by the floundering of other key initiatives.  The kick-off of the long-delayed TALF program to try to ease the consumer and small business credit crunch was predictably embarrassing, with only US$4.7 billion in loans issued in the first month, as the policy background provided strong disincentives for investor participation.  At that rate, it will take about 18 years’ worth of monthly allocations for the full US$1 trillion in loans that are the goal of the TALF to be reached.  On a more positive note, though, ABS issuance overall for the deals included in the TALF was a good bit larger than the portion funded with TALF loans, at about US$8 billion, so at least the TALF appears to have had a somewhat greater, though still at this point quite small, overall impact in restarting the previously frozen consumer asset-backed securities markets.  Meanwhile, there’s still no sign of the private/public bad bank plan but, realistically, in the current environment, the prospects for this program succeeding do not seem good, so ongoing delays don’t really change much.  The huge positive impact of the Fed’s actions on rates, mortgage rates being of particular importance, set against the lack of traction or organizational progress in other key initiatives and a mixed performance across risk markets, with weakness outside of equities, after the prior major bear market rallies in most areas came as the near-term economic outlook continued to deteriorate, with severe weakness in claims and the early regional manufacturing surveys pointing to miserable results for the upcoming employment and ISM reports. 

On the week, benchmark Treasury yields fell 2-33bp, with the long end lagging as it falls outside the Fed’s purchase range and the 7-year leading as this area is expected to be a focal point of the buying.  The 2-year yield fell 11bp to 0.87%, 3-year 15bp to 1.22%, 5-year 23bp to 1.64%, 7-year 33bp to 2.15%, 10-year 26bp to 2.63%, and 30-year 2bp to 3.65%.  Surging commodity prices, a plunge in the dollar, decreased deflation fears from the Fed’s much more aggressive policy, and the expectation of a potential outsized impact of Fed buying on the sector helped TIPS put in an extremely strong week.  The 5-year TIPS yield fell 32bp to 0.95%, 10-year 46bp to 1.39%, and 20-year 35bp to 2.06%.  This left the 10-year inflation breakeven up 20bp on the week and 40bp since the recent lows hit two weeks ago to 1.24% – still a very low estimate for 10-year average CPI inflation, but clearly reflecting some notable receding in previously rising deflation fears.  Mortgages outperformed Treasuries a bit in the wake of the Fed’s announcement to send yields sharply lower on the week and not too far from the all-time lows briefly hit in early January.  After closing February at 4.31%, a high since early December, and then having already shown some improvement to 4.13% at the end of the prior week, 4% MBS yields fell about another 20bp on the week to modestly below 4%, for a net improvement of almost 40bp in the past three weeks.  The main national survey showed average 30-year mortgage rates down 5bp to 4.98% in the latest week, just above the record low of 4.96% hit two months ago when the MBS market briefly surged higher when Fed buying started before reversing course through February.  Rates should easily move down to new record lows when the latest market rally is reflected in next week’s survey.  With the relaxed loan-to-value standards for agency mortgage refinancings put in place with the Administration’s housing support plan (allowing agency-backed loans with LTVs of up to 105% to be refinanced) and rates heading to record lows, up to 90% of the around US$5.5 trillion conventional conforming mortgage market should shortly be refinanceable.

Decreased pessimism about the financial system outlook, driven by the Fed’s moves, helped to substantially extend the more modest improvement in interbank lending conditions seen the prior week and ease short-term swap spreads.  3-month LIBOR fell 9bp on the week to 1.22%, a five-and-a-half-week low.  This brought the spot 3-month LIBOR/OIS (expected average fed funds over the next three months) spread down 8bp to 99bp, low in a month.  And this was improvement that saw a larger extrapolation looking ahead.  The forward LIOR/OIS spread to June fell about 12bp to 98bp, September 14bp to 90bp, December 12bp to 94bp, and next March 10bp to 75bp.  This expected reduction in funding pressures allowed the benchmark 2-year swap spread to narrow 5.5bp on the week to 64bp, even with the substantial rally in rates.  The much bigger rally in the belly of the Treasury curve caused swap spreads in that sector to move out a fair amount, but relative to the plunge in rates the moves were relatively mild, as initial and expected mortgage duration hedging-related receiving provided support. 

Although stocks managed to extend their rally a bit further off the March 9 lows, with the S&P 500 up 1.6%, otherwise the bear market rallies at least temporarily came to an end across other key markets, and even stocks saw a bit of a pullback from midweek highs Thursday and Friday.  In late trading Friday, the series 11 investment grade CDX index was trading 2bp wider on the week at 238bp (the now on-the-run series 12 started trading Friday at a bit below 200bp).  The high yield CDX index continued to lag, trading 27bp wider to 1,712bp through Thursday and then selling off another 3/4 of a point Friday.  And the leveraged loan LCDX index was back to underperforming high yield with a 172bp widening on the week to 2,165bp being extended to a more than 250bp sell-off with a further substantial sell-off Friday.  Skepticism about the bad bank concept investors have been waiting for weeks now for the Treasury to detail continued to lead to particularly bad performance by the subprime ABX market and also weigh substantially on the commercial mortgage CMBX market.  The ABX market never saw a rebound at all as other markets were bouncing off their March 9 lows and every index again ended the latest week either at or very close to all-time lows.  The CMBX market at least did participate to some extent in the prior risk market bounce, but it resumed sinking in the latest week, with the AAA index widening 13bp to 747bp and junior AAA 74bp to 2,202bp, a new all-time wide for the latter. 

The most notable economic data of the past week were early indications for the key upcoming early releases for March.  While initial jobless claims in the latest week pulled back slightly, the four-week average moved to a new high during the survey week for the employment report.  More important, continuing claims posted a second straight enormous increase to extend a series of record highs. Even relative to the size of the much larger labor force, a rise in the insured unemployment rate to 4.1% indicated that the labor market is in its worst shape since 1983.  Our preliminary forecast is for non-farm payrolls to plunge a record 700,000 in March, deteriorating even further from declines averaging 646,000 over the prior four months, and for the unemployment rate to surge another 0.4pp on top of last month’s half-point increase to 8.5%.  Meanwhile, the headline sentiment measures in the Empire State and Philly Fed manufacturing surveys were directionally mixed (though both extremely weak still in absolute terms), but underlying details in both surveys badly deteriorated to their worst outcomes on record.  On an ISM-comparable weighted average basis, the Empire State survey fell to 36.1 from 40.2 and the Philly Fed to 29.4 from 33.8, both all-time lows in each survey’s history (which is a limited eight years for Empire but a much longer 41 for Philly).  Based on these results, our preliminary forecast is for nearly a two-point drop in the ISM to 34.0 in March after a rebound from the December low of 32.9 to 35.8 in February.  We’ll update our estimate as more regional reports are released in the next couple weeks.  Finally, early anecdotal reports point to no improvement in March motor vehicle sales after they plummeted to only 9.1 million units annualized, a low since 1981 and second lowest since 1974, in February. 

Meanwhile, there was some mild upside in underlying consumer and producer price inflation in February, but with slack in the economy moving towards post-war record highs, substantial renewed deceleration is likely going forward in core measures, and headline inflation is likely to run in negative territory through at least most of this year.  The consumer price index rose 0.4% (though for only a 0.2% rise from a year ago), boosted by a 3.3% gain in energy prices led by gasoline that offset the first decline in food prices (-0.1%) in three years.  Although gas prices have been holding steady in March, the seasonal factors look for a big rise beginning this month, so seasonally adjusted energy prices will likely be down significantly in the next report.  Meanwhile, the core CPI rose a slightly larger-than-expected 0.2% (+1.8%Y) on surprising upside in apparel (+1.3%) and new vehicles (+0.8%) that is unlikely to be sustained.  On the other side, the key owners’ equivalent rent component (+0.1%) continued to decelerate, and sizable declines continued in hotel rates (-1.8%) and airfares (-2.6%).  Meanwhile, the producer price index ticked up 0.1% in February for a 1.3%Y decline, restrained by a 1.6% plunge in food prices.  And although gasoline prices gained 9%, this was largely offset by a sharp pullback in natural gas utility costs, leaving energy prices only up 1.3%.  The core PPI gained 0.2%, with a bit of elevation in a range of capital (notably a further bizarre jump in light truck prices) and consumer goods contributing to a bit of further elevation on top of the 0.4% surge recorded last month.  On a year-on-year basis, the core PPI remained elevated at +4.0%.   This is down somewhat from the +4.7% peak hit in October, but we expect to see a much more rapid deceleration going forward, given the enormous slack building up in the economy. 

Based on the CPI and PPI results, we look for a 0.3% gain in the core PCE price index in February, which would boost the annual rate to +1.7% from +1.6%.  The headline PCE price index appears likely to rise 0.4%, a bit higher than we had been assuming.  This lowered our estimate for real consumption in 1Q to +0.9% from +1.2%, which lowered our GDP forecast to -4.9% from -4.8%. 

Focus in the Treasury market in coming week will largely shift back towards supply again, with another record week of issuance on tap – US$40 billion 2s Tuesday, US$34 billion 5s Wednesday and US$24 billion 7s Thursday – for an unprecedented weekly total of US$98 billion in coupon issuance.  The 2-year size was unexpectedly held unchanged for a second straight month, though we continue to look for further upside going forward, the 5-year size was boosted US$2 billion as expected to another record, and the 7-year size was increased US$2 billion from last month’s debut issue.  We hadn’t been forecasting a change in the 7-year size, but given the issue’s very strong performance on the curve since being revived at the end of last month, particularly following the Fed’s Treasury buying plan announcement, boosting issuance in this sector certainly makes sense.  It seems likely that the Fed’s big buying support should help the market take down this latest wave of supply with less angst, but we’ll see.  In addition to the auctions, there are a handful of economic data releases due out in the coming week, but they are generally of secondary importance ahead of the early round of key March data due out the following week.  Notable releases include existing home sales Monday, durable goods and new home sales Wednesday, revised GDP Thursday and personal income Friday:

* We forecast February existing home sales of 4.5 million units annualized.  The pending home sales index plummeted in January, but this gauge has not necessarily been an accurate leading indicator of resales in recent months.  In fact, it now appears to be more of a contemporaneous gauge.  We expect a continued flurry of foreclosure sales – supported by the plunge in mortgage rates that has occurred in early 2009 – to provide some support and help keep the volume of February resales little changed on a sequential monthly basis. 

* We look for durable goods orders to decline 0.5% in February.  The ISM orders index is off its lows but still running at a very depressed level.  Meanwhile, company data point to continued sluggishness in bookings for big-ticket items, such as aircraft.  So we look for a further decline in the headline orders series, together with ongoing slippage in the key core category, non-defense capital goods excluding aircraft.

* We expect February new home sales to fall to a 300,000 unit annual rate.  The homebuilder sentiment survey has held fairly steady – albeit at an extremely low level – over the past few months.  Our February forecast implies a modest 3% dip on a month-to-month basis, but we believe that sales of newly built residences are probably very near a bottom.

* A sharp downward revision to inventories, together with lower construction spending, should lead to 4Q GDP growth being revised down to -6.8% from previously published reading of -6.2%.

* We forecast a 0.2% decline in February personal income and 0.2% rise in spending.  The employment report points to further weakness in underlying income generation following some temporary elevation in January that was related to a sizable cost-of-living adjustment for government transfer payments.  Meanwhile, retail control showed surprising strength in February, which should more than offset a further pullback in motor vehicles sales.  The combination of a drop in income and a rise in spending should lead to a pullback in the personal saving rate following a sharp jump in January that resulted from an assumption of much lower tax season payments this year.  Finally, our translation of the February CPI results points to a 0.3% rise in the core PCE, with the year-on-year rate ticking up to +1.7%.

Important Disclosure Information at the end of this Forum

Disclosure Statement

The information and opinions in Morgan Stanley research were prepared or are disseminated by Morgan Stanley & Co. Incorporated and/or Morgan Stanley C.T.V.M. S.A. and/or Morgan Stanley & Co. International plc and/or Morgan Stanley Japan Securities Co., Ltd. and/or Morgan Stanley Asia Limited and/or Morgan Stanley Asia (Singapore) Pte. (Registration number 199206298Z) and/or Morgan Stanley Asia (Singapore) Securities Pte Ltd (Registration number 200008434H) and/or Morgan Stanley Taiwan Limited and/or Morgan Stanley & Co International plc, Seoul Branch, and/or Morgan Stanley 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 Morgan Stanley India Company Private Limited and their affiliates (collectively, "Morgan Stanley"). As used in this disclosure section, Morgan Stanley includes RMB Morgan Stanley (Proprietary) Limited, Morgan Stanley & Co International plc and its affiliates.

Global Research Conflict Management Policy

Morgan Stanley Research observes our conflict management policy, available at www.morganstanley.com/institutional/research/conflictpolicies.

Important Disclosures

Morgan Stanley Research 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. Morgan Stanley Research 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, research prepared by Morgan Stanley Research personnel is 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 Morgan Stanley Research change apart from when we intend to discontinue research coverage of a company. Facts and views in Morgan Stanley Research 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: Morgan Stanley Research is distributed by Morgan Stanley Taiwan Limited; 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 Asia Limited as part of its regulated activities in Hong Kong; if you have any queries concerning it, contact our Hong Kong sales representatives.

Morgan Stanley Research is disseminated in Japan by Morgan Stanley Japan Securities Co., Ltd.; in Canada by Morgan Stanley Canada Limited, which has approved of and takes responsibility for its contents 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, supervised by the Spanish Securities Markets Commission(CNMV), which states that it is written and distributed in accordance with rules of conduct for financial research under Spanish regulations; in the US by Morgan Stanley & Co. Incorporated, which accepts responsibility for its contents. Morgan Stanley & Co. International plc, authorized and regulated by Financial Services Authority, disseminates in the UK research it has prepared, and approves solely for purposes of section 21 of the Financial Services and Markets Act 2000, research prepared by any affiliates. Private UK investors should obtain the advice of their Morgan Stanley & Co. International plc representative about the investments concerned. In Australia, Morgan Stanley Research and any access to it is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. RMB Morgan Stanley (Proprietary) Limited is a member of the JSE Limited and regulated by the Financial Services Board in South Africa. RMB Morgan Stanley (Proprietary) Limited is a joint venture owned equally by Morgan Stanley International Holdings Inc. and RMB Investment Advisory (Proprietary) Limited, which is wholly owned by FirstRand Limited.

Trademarks and service marks in Morgan Stanley Research 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. Morgan Stanley Research 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/instruments is available on request.

The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (DIFC Branch), regulated by the Dubai Financial Services Authority (the DFSA), and is directed at wholesale customers only, as defined by the DFSA. This research will only be made available to a wholesale customer who we are satisfied meets the regulatory criteria to be a client.

The information in Morgan Stanley Research is being communicated by Morgan Stanley & Co. International plc (QFC Branch), regulated by the Qatar Financial Centre Regulatory Authority (the QFCRA), and is directed at business customers and market counterparties only and is not intended for Retail Customers as defined by the QFCRA.

As required by the Capital Markets Board of Turkey, investment information, comments and recommendations stated here, are not within the scope of investment advisory activity. Investment advisory service is provided in accordance with a contract of engagement on investment advisory concluded between brokerage houses, portfolio management companies, non-deposit banks and clients. Comments and recommendations stated here rely on the individual opinions of the ones providing these comments and recommendations. These opinions may not fit to your financial status, risk and return preferences. For this reason, to make an investment decision by relying solely to this information stated here may not bring about outcomes that fit your expectations.