Euroland
Consumers Holding Up Just a Little Longer
May 27, 2009

By Elga Bartsch | London

Consumers Are Living on Borrowed Time...

When it comes to the consumer cycle, conventional wisdom has it that continental Europe is in much better shape than the US or the UK.  Indeed, where the Anglo-Saxon economies are likely to see a sizable retrenchment in consumer spending this year, continental consumers will probably keep spending broadly stable.  But, while the relative outperformance of the Euroland consumer should come true this year, we doubt that it will persist next year.  In our view, a number of factors make Euroland consumers more resilient, but only temporarily.  These factors range from more generous unemployment benefits, to lower-debt-to-income ratios, a higher household saving rate, more resilient housing markets and a smaller role of funded pensions (which were hit hard by the recent financial turmoil).  These factors will, along with falling inflation, lower interest rates and reduced income taxes, insulate Euroland consumers this year.  Eventually, however, the deteriorating labour market will catch up with consumers on the Continent too, we think.

...Also in Germany, Courtesy of One-Off Policy Measures

Much will depend on Germany, Europe's largest economy, and how its consumers are doing.  Given that German households haven't shown much spending prowess over the last ten years, they might be ready to kick spending into higher gear.  The great take-up of the government's car scrappage scheme suggests that there is some new-found life in German consumers' pockets after an extended period of consumer standstill.  We believe that German consumers will exercise less spending discipline in coming years than in the last decade, and would highlight a number of special factors that are likely to boost consumption temporarily: 

•           First, considerable income tax cuts worth a total of 0.6% of GDP kicked in with the March pay cheques. 

•           Second, the car-scrapping scheme was put in place in mid-February.  The budgeting for this scheme already had to be raised from €1.5 billion to €5 billion due to the unexpectedly strong uptake of the €2,500 scrapping bonus. 

•           Third, after several years of stagnation, a major increase in pension benefits by 2.7% is scheduled for July 1. 

•           Fourth, ahead of the September 27 general election, the government has beefed up its short-shift subsidies considerably, hoping to avoid major job losses.  In addition, the government was reported by various German newspapers earlier this year to have reached a moratorium on mass layoffs with many large German companies.  These measures are likely to partially postpone the labour market reaction to the sharp drop in economic activity. Hence, we should see a more marked rise in lay-offs in late 2009 and in 2010. As a result, it might not be before the winter of 2010-11 that we see a peak in German unemployment.

Eventually, Job Losses Will Get to Consumers

By far the most important factor driving Euroland consumer spending is the labour market. Not only is disposable income the main fundamental variable driving consumer spending, but job growth also has a much bigger effect on consumer spending than wage growth - despite the fact that they both equally go towards wage income.  On our estimates, a 1% increase in real disposable income adds 0.84% to consumer spending over the long term (see France Economics: The Long-Term Curse of Structural Rigidities, March 9, 2009 and Euroland Economics: Sensitive Consumers, July 3, 2006).  Real disposable income is driven by a number of different factors, including inflation, wages, taxes and social security contributions paid, benefits received and, last but not least, job growth.  Some factors are largely exogenous to the business cycle, but decided politically (e.g., the marginal tax rate and the benefit levels).

The main endogenous factors - wages and employment - tend to have very different effects on consumer spending (even though their product - wage income - is the main cyclical factor driving disposable income dynamics).  According to the EU Commission, the impact of a 1% change in employment can be up to three times (between 0.69% and 0.9%) as large as the impact of a 1% increase in real wages (0.2-0.35%) (see EU Commission, Quarterly Report on the Euro Area, Vol 5, No 3, 2006).  Hence, it is the job market that matters most for consumers.  And this is where our concern lies.  The recent disappointing round of 1Q GDP reports suggests that our estimate for a contraction in employment of 3.6% from peak-to-trough could be too optimistic and that the unemployment rate could well rise to more than 10% next year.  Hence, consumer spending should weaken further next year.

Household Debt, Interest Costs and Negative Wealth Effects Are Less of a Concern

Other factors, such as financial and non-financial assets, play a considerably smaller role for euro area consumers: a (permanent) 10% rise in housing wealth adds not even 0.8% to consumer spending while a 10% rise in financial wealth lifts consumer spending by 0.2%.  In the past, the impact of rising financial wealth is echoed by a falling saving rate, indicating that consumer spending outpaces income.  While the Euroland saving rate eased steadily over the course of the 1980s and 1990s, it has moved sideways since the turn of the century.  At 15.1% of disposable income at the end of last year, it remains considerably higher than in the US (3.2%) or the UK (4.8%). 

According to a study by the European Commission, only financial wealth affects the savings rate in the long run (a 10% increase in the wealth-to-income ratio lowering the saving rate by 0.6pp) (see European Commission, Quarterly Report on the Euro Area, Vol 7, No 3, 2008).  Similarly, neither household debt nor debt service costs are likely to be weighing much on consumer spending.  While there are a wide range of interest rate arrangements on mortgages across the euro area, ranging from Spain or Ireland, where variable-rate mortgages dominate, to Germany or France, where fixed-rate mortgages are de rigeur, at the euro area level the consumer debt burden is not very interest rate-sensitive.  A 100bp increase in nominal short-term interest rates will raise the debt burden by only 0.15% of disposable income.  Hence, there is little reason to be concerned about debt, interest costs or wealth effects at the euro area level.  The country-by-country picture though is probably more accentuated.

Near-Term Consumer Outlook Is Still Improving

Despite being bearish on the medium-term consumer outlook in the euro area, we see some signs of the near-term outlook for the current quarter improving.  Our consumer spending indicator points to a recovery of consumer spending in 2Q on the back of stabilising consumer confidence, rising car registrations and less steep declines in retail sales.  To provide a real-time estimate of consumer spending, we use monthly data on retail sales, car registrations and consumer confidence and plug them into an econometric model (see Introducing a Consumer Spending Indicator, September 13, 2004).

Our consumer spending indicator captures 72% of the variations in consumer spending growth.  According to this indicator, a 1% rise in retail sales adds 0.4% to consumer spending, a 10% rise in car registrations boosts consumer spending by 0.5%, and a ten-point rise in consumer confidence in the previous quarter lifts consumer spending growth by 0.2% in the current quarter.  In the absence of any other influence, consumer spending would expand by 0.3%Q per quarter, a notch below the long-term average growth rate of 0.5%Q.  Note though that the consumer spending estimates vary considerably with revisions of retail sales data, which tend to be frequent and significant.  As discussed above, this near-term recovery in consumer spending is likely to reflect a series of special factors boosting consumer spending temporarily. 

To sum up, the outlook for consumer spending in the euro area is mixed.  While a number of factors will still support consumer spending this year, we fear that the initial resilience in the consumer will eventually give in to the grim labour reality.  Looking beyond this cyclical dip next year, however, we deem the outlook to be relatively robust.  Lengthy balance sheet repair is less likely to be a drag on Euroland consumers.  Neither have debt to income levels ever reached the lofty heights of the Anglo-Saxon economies, nor do equity holdings (directly or via pension funds) account for the same proportion of disposable income.  As the German experience over the last decade shows, balance sheet repair, together with the absence of house price rises, coupled with only modest income growth as the country rebuilt its cost-competitiveness and consolidates its fiscal position, can bring consumer spending to a standstill. 

Appendix: What Is Driving Consumer Confidence?

As consumer confidence is the most timely indicator on the consumer cycle in the euro area and also, as my colleague Graham Secker points out (see A Closer Look at the Consumer Discretionary Sector, May 26, 2009), a key signal to the relative performance of retail stocks in Europe, we look into the factors that typically affect consumer confidence.  We scrolled through a series of different financial and non-financial variables to see whether any of them have a leading indicator property for consumer confidence.  Among the financial variables we looked at were the exchange rate, the oil price, the equity market and short rates.  Within the real economic indicators, we looked at were business confidence and retail confidence.  We performed so-called Granger-Causality tests, which establish whether estimates of current consumer confidence can be improved by taking into account past values of the respective indicators.  The results are very sensitive to the number of lagged values of consumer confidence considered in the estimation.  The higher the numbers of lagged consumer confidence values at which an indicator still adds new information to the estimate, the more robust it is as a leading indicator for consumer confidence.

The results give us a good idea about which variables could potentially cause consumer confidence to make new lows after the recent tentative recovery.  We find that the equity market systematically leads consumer confidence.  It still has an additional information content even if the first 12 lags of consumer confidence are considered.  The same is true for the unemployment rate.  Other variables only have additional information to provide if less than a year's consumer confidence is considered.  These variables include industrial confidence and oil prices.  Hence, should equity markets hit new lows, so could consumer confidence.  Similarly, rising oil prices and falling business sentiment - either here or in the US - could push consumer confidence lower again.  Last but not least, the rise in unemployment will likely weigh on consumer morale for quite a while. 

Important Disclosure Information at the end of this Forum

United States
Review and Preview
May 27, 2009

By Ted Wieseman | New York

Trends in the economic data and gyrations in equity and credit markets at times continue to drive some short-term volatility, but the extent to which Treasury market trading has come to be dominated by supply was amply illustrated the past week, as the market's two-week run of improved performance during an issuance lull came to an abrupt and violent end over last day-and-a-half of the latest week when the temporary break in the supply deluge came to an end with Treasury's announcement of the upcoming week's US$101 billion in 2-year, 5-year and 7-year issuance.  The high yields for the year had previously been hit after the awful 30-year auction on May 8 completed a two-week run of issuance in volumes we had never even come close to seeing in such a timeframe before, but that marked the beginning of a supply pause, which coupled with steady Fed buying allowed the market to rebound through Thursday morning.  But when the Treasury made its supply announcement at 11:00 and the Fed simultaneously announced the results of the last of the past week's three (and past two weeks' six) Treasury purchase operations, the bottom fell out of the market even though the details of the announcements were not the least bit surprising, sending yields at the longer end blasting through the previous May 8 peaks to new highs for the year.  Only the front end continues to hold in well, with the 2-year trading in a narrow range for going on four months now and bills having been pinned at extraordinarily rich levels for quite some time, as interest rate markets continue to show less confidence in economic recovery than risk markets, and the enormous amounts of cash sloshing around the financial system looks for safe home even if that means accepting near zero returns.  A supply-driven market is certainly a boring market, and there was almost no economic data of interest the past week either, with the main focus on early indications for the upcoming employment and ISM reports - our preliminary estimates are -500,000 and 42.0.  But there were some much more interesting developments through the week in other interest rate and related markets.  In particular, spot Libor rates and spreads went into complete freefall, and while this was initially extrapolated forward into a continued improvement in the coming months, this reversed course late in the week and put some upward pressure on swap spreads after they had plunged to new lows early in the week.  And the increasingly severe fiscal situation of many states, with California the main focus the past week but a number of other states suffering nearly as seemingly intractable budget issues, brought the municipal bond market into increasing focus.  Despite a run of bad news across a number of states, the broad muni CDX indices continued to hold in quite well, as investors continue to hope for some kind of stepped-up federal bailout.

For the week, benchmark Treasury yields surged 4-33bp and the curve steepened sharply.  After a bit of softness early in the week as stocks and credit rallied, the market had recovered back towards unchanged levels for the week Thursday morning after the prior week's significant gains but then went into complete freefall when the Treasury announced the upcoming week's auctions and the Fed the results of the last of the week's Treasury buying despite no surprises in either announcement.  The 2-year yield rose 4bp to 0.89%, 3-year 9bp to 1.39%, 5-year 23bp to 2.21%, 7-year 33bp to 2.95%, 10-year 32bp to 3.45% and 30-year 30bp to 4.38%.  This left 2s-10s just below the cycle peak briefly hit in November and 2s-30s at a six-year high.  New highs for oil prices, a plunge in the dollar and their generally lower-volatility nature compared to the plunge in nominals helped TIPS hugely outperform.  The 5-year TIPS yield rose 2bp to 1.01%, 10-year 5bp to 1.68% and 20-year 13bp to 2.33%, sending the benchmark 10-year inflation breakeven soaring 27bp to 1.77%, a high since September (when oil was still trading at US$100+).  Even while managing to outperform Treasuries to a notable extent, mortgages still had a very bad week that sent MBS yields moving above the top of the tight ranges they've been in for a couple months now since the rally following the March FOMC meeting.  Yields on 4% MBS were up about 15bp to near 4.10% compared with what had been a fairly stable range of around 3.85-4.05% for the prior two months.  Even with all the Fed mortgage buying going on and the continued substantial outperformance of MBS compared to Treasuries recently, there's no way such severe weakness in Treasuries isn't going to have a major, though at least lesser, knock-on impact on mortgage rates.

In notably better news in the interest rate space, 3-month Libor - after having been gradually declining for some time - went into freefall through most of the week through Thursday before stabilizing Friday.  On the week, the decline was 17bp to 0.66%, extending a series of record lows that began May 5, as 3-month Libor has set lower at every single fixing since March 26.  The spot 3-month Libor/OIS spread fell the same 17-46bp, a more than 50bp drop in the past two months to the lowest level since February 2008.  There was a slightly negative twist in this very positive development, however.  The sharp improving trend in spot Libor rates and spreads had been getting extrapolated forward nearly as strongly until a sudden shift late in the week.  Indeed, after significant losses Thursday and Friday, the Jun 09 eurodollar contract is now betting that 3-month Libor will reverse course and move up to 0.70% on June 15 and continue moving higher from there even though no change in Fed policy is priced into fed funds futures until late this year or early next.  As a result, the forward Libor/OIS spread to June is now priced to rise from current levels to around 50bp and hold there into the first part of next year.  Longer-dated forwards suggest that the market sees something around a 30bp spread as probably the new norm in this new financial world, up somewhat from the minimal 10bp or so spreads seen before mid-2007.  Earlier in the week, the market was betting that we would be all but back to normal by mid-year, but now sees the process taking more time.  This somewhat increased pessimism about future funding improvements contributed to swap spreads coming off the tights hit early in the week.

Worsening budget outlooks across much of the country at the state and city level came into greater focus the past week after California voters rejected a series of ballot initiatives aimed at narrowing an enormous and growing projected budget deficit in the state's fiscal year that begins in July.  The situation has become bad enough that calls for a state constitutional convention for the first time since the nineteenth century to deal with the fiscal impasse have been even been gaining traction.  Other notable bad news included New York reporting an incredible 44%Y decline in tax revenue in April and Moody's downgrading Nevada's credit rating in response to weaker tax collections from slowing gaming revenue.  After bouts of substantial weakness in December and again in March, the muni market had been on a steadily improving trend despite what appeared to be ever-worsening budget outlooks that extended into the middle of the past week when the 5-year muni MCDX index moved towards its recent tight of 165bp after having closed as wide as 291bp in the first part of March and all-time wides of 343bp in mid-December.  This reversed course to a limited extent late in the week after hopes for federal government support were diminished, with the MCDX index trading near 182bp midday Friday.  On Thursday, the Fed said it did not intend to provide any sort of muni debt backstop, and Treasury Secretary Geithner said that TARP money would not be used for this purpose either.  Congress continues to ponder other steps that the federal government could do to help struggling state budgets, but it seems clear that across much of the country there will be a severe fiscal tightening at the local level, with painful tax hikes and spending cuts in many states, that could offset to a meaningful extent federal fiscal stimulus. 

After the prior week's correction from the May 8 highs, risk markets renewed upside to various extents over the past week, with stocks lagging credit and the AAA rated CMBX index putting in a particularly strong showing in response to expansion of the TALF to legacy CMBS securities.  At the time of the early bond market close, stocks were about 1% higher on the week.  Financials were a relative laggard, showing modest downside, largely it appeared in response to Congressional action to tighten up regulations on credit cards.  Credit had a better week - extending the pattern of stocks having clearly led the initial recovery in risk markets off the March lows, but credit having moved more into lead in April - with the investment grade CDX index trading 11bp tighter on the week at 147bp, returning almost all the way back to the 143bp tight since October hit May 8.  On a relative basis, improvement in lower-quality credit was more in line with the more muted gains in stocks.  The high yield CDX index was 49bp tighter on the week at 1,101bp through Thursday and trading flat Friday, while the leveraged loan LCDX index was 52bp better at 1,129bp as of midday Friday.  After the Fed announced that starting in July the TALF would be expanded to legacy CMBS - the initial ABS-focused part of the TALF only applies to new issues and the expansion to CMBS was initially planned to have the same restriction - the AAA commercial CMBX index (TALF only purchases of AAA rated CMBS) exploded higher.  Even after giving back some ground subsequently, the index still surged 4.72 points on the week to 77.77.  To a significant extent this fundamentally based move in the AAA CMBX index allowed it to catch up with an earlier more technically driven move in the lower-rated indices, which saw a major short squeeze in the first half of the month.  These lower-rated CMBX indices all gave back some ground the past week, but the prior squeeze was so huge that net gains on the month across the AJ to BBB- indices remain enormous.  Meanwhile, the steady grind higher that had been seen in the AAA subprime ABX index off the April lows, that had been briefly interrupted the prior week, got right back on track.  This index rallied another point-and-a-half to 28.05 the past week, a high since the first few days of March.  The gains have been generally small on a day-to-day basis, but except for that brief pause so persistent that the net rally since the April low has now cumulated to a sizable 21%. 

The past week's economic calendar was very light, with what limited data focus there was largely on leading indicators for more important upcoming numbers.  The jobless claims report remains dismal and pointed to another terrible employment report in May.  Initial claims have come down somewhat from the March/early April peaks, but are still running at extremely elevated levels above 600,000, while continuing claims have surged to new record-highs every week for months.  Our preliminary forecast is for a 500,000 drop in non-farm payrolls in May, about the same as in April.  Note that much of this expected continued moderation in the pace of job losses is expected to again result from a surge in temporary census-related hiring by the federal government, which we expect to add 75,000 to payrolls in May.  Meanwhile, the Philly Fed manufacturing survey followed the previously reported Empire State in remaining at dismal absolute levels, but at least continuing to moderate off the recent all-time lows.  On an ISM-comparable weighted average basis, the Philly survey rose to 38.2 from 33.8 and the Empire to 43.3 from 42.5.  Based on these early surveys, our preliminary ISM estimate is for a further 2-point gain to 42.0, which would still be a dreadful result in any absolute sense but at least notably less bad than the generational low of 32.9 hit in December. 

There's a lot on the upcoming week's holiday-shortened calendar, though supply seems likely to continue to dominate Treasury market focus.  Maybe a silver lining of the market's freefall to end the latest week is that perhaps the pre-auction concession has already been built in, possibly limiting further downside in the face of the actual auctions.  A total of US$101 billion in coupons will be sold - US$40 billion in 2s Tuesday, US$35 billion in 5s Wednesday and US$26 billion in 7s Thursday.  Given how resilient 2s have been as longer-dated issues have crumbled in the face of mounting issuance, the 2-year auction might be the most interesting to watch, to see if this can continue.  On the other side of the supply picture, the Fed won't be much help.  There are only two rounds of Fed buying scheduled, one in TIPS that will likely be small and another in 3- to 4-year paper that will likely be bigger but is not really the focus of the market's problems at this point.  Between the two operations, total Fed buying will probably only be about US$9 billion, almost negligible compared to all the new supply.  The data calendar is heavy in the coming week, but secondary to the initial run of key data for May that will be released the following week (for which the upcoming week's release of the remaining regional manufacturing surveys and the jobless claims report with continuing claims covering the survey week will help firm up expectations).  Data releases due out include consumer confidence Monday, existing home sales Wednesday, durable goods and new home sales Thursday, and revised GDP Friday:

* Other sentiment gauges showed some further improvement in early May, so we look for about a 6-point gain in the Conference Board measure to 46.  Such an outcome would put the index at its highest reading since last September, though still at a very depressed level from a longer-run perspective.

* We expect April existing home sales to be little changed at 4.60 million units annualized.  Following a three-year long pullback from the September 2005 peak, resales appear to have found a bottom over the past six months or so.  In April, we look for a slight (0.7%) uptick, driven by the recent dip in mortgage rates and a further increase in activity involving foreclosed properties.

* We forecast a 0.5% rise in April durable goods orders.  The ISM survey suggests that the pace of order activity has started to decline at a slower rate.  We actually expect to see a slight uptick in April bookings of durable goods, driven by some upside in aircraft and tech.  Also, vehicle assembly schedules point to a temporary boost in the auto category.  Finally, note that we look for a fractional gain (+0.1%) in the key core component, non-defense capital goods excluding aircraft.

* We expect April new home sales to rise to a 370,000 unit annual rate.  The sharp improvement in the homebuilders' sentiment survey points to some upside in sales of newly constructed residences in April.  So, we look for about a 4% sequential rise.  Still, activity remains at very depressed levels from a longer-run perspective.  Indeed, our April estimate implies a 32% drop relative to the same period a year ago.

* We expect the plunge in 1Q GDP to be revised to a slightly less bad -5.7%.  Upward revisions to inventories, net exports and construction are expected to more than offset a downward adjustment to consumption, leading to a somewhat smaller drop in 1Q GDP than the previously reported reading of -6.1%.

* We look for both personal income and spending to fall 0.2% in April.  The labor market report pointed to another outright decline in personal income, while the retail sales figures imply a similar dip on the spending side.  Still, the personal savings rate should tick up a bit due to the impact of a slight reduction in tax withholding associated with the Making Work Pay provision of the fiscal stimulus legislation that was enacted in February.  Finally, our translation of the CPI data suggests that the headline PCE price index should come in at +0.05%, with the core at +0.24% (which would push the year-on-year rate up a tick to +1.9%).

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.