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 Morgan Stanley Publications
Global Economic Forum
Morgan Stanley Blue Papers
March 20, 2014
Morgan Stanley Global Research

Morgan Stanley Blue Papers address long-term, structural business changes that are reshaping the fundamentals of entire economies and industries around the globe. Analysts, economists, and strategists in our global research network collaborate in the Blue Papers to address critical themes that require a coordinated perspective across regions, sectors, or asset classes.

The ‘Internet of Things’ Is Now: Connecting the Real Economy
April 3, 2014

The Internet of Things is the next revolution in computing. While smartphones and the mobile internet saw the advent of applications for the consumer, we expect to see the pervasive integration of semiconductors, mobile communication, and Big Data/analytics propelling the Internet of Things into the wider economy.

Mis-allocated Resources: Why Banks Need to Optimise Now
March 20, 2014

If an Emerging Markets shock materializes, we believe the impact on Developed Markets could be stronger than it was in the late 1990s and would most likely last longer. A larger EM and China footprint in the global economy, much greater DM exposure to EM via exports and financial linkages, and a weaker starting point for DM growth could collectively pass on a stronger variant of contagEM to DM growth and markets than was seen back then. Most exposed are European equities (relative to the US and Japan), the euro and commodities, while DM bonds and gold would be safe havens.

Could it be worse than the 1990s for DM?
March 5, 2014

If an Emerging Markets shock materializes, we believe the impact on Developed Markets could be stronger than it was in the late 1990s and would most likely last longer. A larger EM and China footprint in the global economy, much greater DM exposure to EM via exports and financial linkages, and a weaker starting point for DM growth could collectively pass on a stronger variant of contagEM to DM growth and markets than was seen back then. Most exposed are European equities (relative to the US and Japan), the euro and commodities, while DM bonds and gold would be safe havens.

Mobile Payments: The Coming Battle for the Wallet
January 8, 2014

Smartphone penetration, along with the convergence of the physical and digital retail environments, is creating new opportunities for electronic payments. This is opening the door for new players to enter the payments ecosystem, and potentially shifting the balance of power among current players. We explore four scenarios around technology and adoption, and identify which companies are best positioned and potentially challenged under each scenario.

Autonomous Cars
November 6, 2013

Autonomous cars are no longer just the realm of science fiction—and the social and economic implications are enormous. Cars with basic autonomous capability are in showrooms today, semi-autonomous cars are coming in 12-18 months, and completely autonomous cars are set to be available before the end of the decade. Beyond the practical benefits, we estimate autonomous cars can contribute $1.3 trillion in annual savings to the US economy alone, with global savings estimated at over $5.6 trillion. There will undoubtedly be bumps in the road as well, including the issues of liability, infrastructure, and consumer acceptance. However, none of these issues appears insurmountable.

Great Rotation? Probably Not
October 8, 2013

As central banks attempt to exit unprecedented liquidity easing, we assess the potential impact on asset allocation trends, and specifically whether we are about to see a rotation out of bonds and back into equities, as investors seek to re-risk.

Cap Goods
September 5, 2013

3D printing technology affords major advantages in certain settings where bespoke design, complex geometry, weight and other considerations are paramount, such as aerospace and MedTech. However, a wholesale displacement of casting, milling, forging and traditional manufacturing techniques does not seem likely, for reasons of cost, basic physics, the types of material available and their properties. Although we are circumspect on the impact for leading industrial OEMs, we think the 3D printing market can grow from $2 billion today to $9 billion in 2020, a 20% CAGR, to become a sizeable market in capital goods and appliances.

MedTech
September 5, 2013

We believe 3D printing may play a significantly more important role in MedTech, thanks to the ability to provide personalised medicine and improved healthcare. Early-stage segments with high revenue or cost-savings opportunities are best placed – including Dentistry (focus on restorative), Orthopaedic Reconstructive (hips, knees and small joints), Orthopaedic Trauma (cranio maxillofacial, nails) and Prosthetics. For investors willing to consider a 2-5 year view, we would include categories such as Corrective Lenses, Advanced Wound Care and Stents. Much longer term, research into printing functional organs is well under way – although commentators agree that it will be at least 10 years before the technology is viable.

Commercial Aviation
A Renewed Lease of Life

July 22, 2013

Aircraft manufacturers can expect to enjoy several years of strong demand, as order flows remain healthy, financing is getting easier and growth in aircraft lessors smooths the cycle. Backlog confidence is rising – high oil prices are driving demand for fuel-efficient aircraft, airlines in developed markets need to replace older fleets, and growth is still robust in emerging markets. Financing hurdles are easing – EM banks and export credit agencies have allowed DM airlines to focus on return-enhancing replacements and EM airlines on expansion. Often overlooked, the proliferation of aircraft lessors plays a vital role in stabilising the commercial OEM cycle.

Emerging Markets
What If the Tide Goes Out?

June 13, 2013

The tides of EM outperformance and US monetary easing produced a surge of capital inflows to the EM world.
Both forces are now less potent, raising the question: Will the tide go out, taking capital flows with it? If it does go out, will it go out slowly and produce a slowdown in capital inflows, or is there a risk of a 'sudden stop' of capital flows? We provide a metric-based framework for investors to analyze which EM economies are most exposed to the risk of a sudden stop, a framework that will likely hold for smaller shocks Our results? Most-exposed are Brazil, Mexico, S. Africa, Turkey and Ukraine, while Argentina, Hungary, Indonesia and Poland are borderline. Our cross-asset analysis not only helps explain the recent moves in different asset classes, but, more importantly, shows how best to position for the risk of a sudden stop. We identify the most exposed asset classes in the EM space and provide specific investment conclusions with a detailed rationale for each exposed country by asset class.

Japan and South Korea
The Yen Tide Does Not Lift All Boats

May 30, 2013

The Japan and South Korea Blue Paper draws on the collaborative expertise of macro, strategy, and equity research teams to analyze the bottom-up effect of a weaker yen on each competing industry in the two countries. The teams conclude that, with a few notable exceptions, the weaker yen effect on Korea’s industries is not that material, despite the equity market discounting significant benefits for Japanese firms at the expense of Korean peers.

Global Steel
Steeling for Oversupply

May 22, 2013

The scale of the structural challenge facing the steel industry is daunting. Global growth is slowing to normal rates, resulting in massive overcapacities that will prove difficult to exit. In particular, upside risk for the key market of China is limited given that planned capacity expansion is likely to exceed demand. Theoretically, we estimate the impact of shutting down all global overcapacity would cost some $232bn, including the knock-on effects on other industries. With global leverage rising, further consolidation seems unavoidable, but will be a multi-year process - i.e., not a 'quick fix'. In this Blue Paper, we explore why we think the market is still pricing in a much more robust recovery beyond 2013 than we foresee, and identify those regions and stocks that we see as best positioned and most challenged. We also look at the findings of our new AlphaWise survey of 40 Chinese steel producers, giving insight into the market that is the driving force for steel supply and demand globally.

US Manufacturing Renaissance
Is It a Masterpiece or a (Head) Fake?

April 29, 2013

We find very little real evidence of a renaissance in US manufacturing activity. Outside of the Chemicals sector, low natural gas prices will likely have limited ramifications on capacity decisions. Rather, an energy-driven acceleration in GDP growth rates and comprehensive US corporate tax reform would be far more impactful. This Blue Paper leverages work from our Industrials, Materials, Energy, and Utilities teams, overlaid with analysis from our Strategy, Economics, and Commodities groups and underpinned by an AlphaWise survey of 266 manufacturers. We prefer to play an uptick in US industrial output via cost-advantaged Chemicals (LyondellBasell, CF Industries), Mexico-leveraged Rails (Kansas City Southern, Union Pacific), and the Auto supply chain (Delphi). We believe Rockwell Automation (IP leverage) and Dover (energy production) are best-positioned in the US Multis/Electricals group. From the Energy and Utilities teams, we highlight Dresser-Rand (LNG and petrochem capacity build-out), Marathon Petroleum (refining), and Sempra Energy (LNG exports). We would also be long the US dollar and the Mexican peso.

Natural Gas as a Transportation Fuel
Energy Market Wild Card

April 16, 2013

Oil is still the dominant fuel for transportation, but natural gas is becoming competitive. Natural Gas Vehicles (NGVs) only make up ~1.5% of the global automotive fleet. However, with global natural gas resources now exceeding 240 years of consumption and gas prices at sharp discounts to oil in the US and Europe, NGV popularity could grow. If NGVs reach a ‘tipping point’, this could alter the outlook for oil & gas demand, but there are obstacles. The rollout of refuelling infrastructure remains the most significant barrier, but there are a large and growing number of initiatives to address this.

Global Semiconductors
Chipping Away at Returns

April 15, 2013

Analyzing four scenarios for future development of the industry, our global semiconductor team believes investors are primarily focused on the most optimistic outcome. In this Blue Paper, the team explains its contrary expectations of a less sanguine industry scenario, and the implications for the major stocks in the space.

Wholesale & Investment Banking Outlook
Global Banking Fractures: The Implications

April 11, 2013

We think 12-14% returns on allocated capital are plausible in 2014-16 through restructuring and some cyclical recovery, but that the skew of winners and losers will be even greater as some firms fail to successfully clear the three key hurdles: 1) Fracturing of global banking driven by Balkanisation, 2) OTC reform, 3) Much higher fixed costs against subdued revenues.

Releasing the Pressure from Low Yields
Should Insurers Consider Re-risking Investments?

March 15, 2013

European insurers own some €5.4 trillion of investments, making the sector one of the biggest participants in European capital markets. However, insurers are under unprecedented pressure from low yields and tight credit spreads. In this Blue Paper, we look at how the sector is currently invested, and crucially how it could be invested to meet investment goals while keeping market risk below historical levels.

Global Autos
Clash of the Titans: The Race for Global Leadership

January 22, 2013

Growth looks set to gravitate to the global industry’s largest players who can most flexibly exploit economies of scale, with a handful of industry ‘Titans’ vying for leadership. In this Blue Paper, we benchmark the industry’s four largest and, in our view, best strategically positioned players – VW, Toyota, Hyundai-Kia and GM. Our analysis underlines the critical success factors of the world’s leading car companies – and where they still have room to learn from each other.

Big Subsea Opportunity
Deep Dive

January 14, 2013

We see strong, visible demand for subsea technology through 2020. Bright spots include: subsea processing, driven by market adoption and the technology’s ability to increase reserves; and subsea services, which should benefit from increased field development and aging of subsea wells that require more servicing. We highlight the companies we see as the key beneficiaries of the shift to subsea.

eCommerce Disruption: A Global Theme
Transforming Traditional Retail

January 6, 2013

Our AlphaWise survey and global eCommerce model suggest a nearly 50% increase in penetration of retail sales for eCommerce, to 9.3% (from 6.5% today), surpassing $1 trillion. As the key disruptors of the past 10 years become incumbents, their continued success hinges on building scale and brand equity. We examine which companies are likely to benefit.

China – Robotics
Automation for the People

December 5, 2012

In this Blue Paper, we explore the potential growth in the robotics market in China. Robot penetration has historically been low, with usage some 60% below the global average. However, with rising labour costs, improving working conditions, a diverse industrial base and increased sophistication of machine tools, we think the scene is set for potentially rapid growth in robotics sales.

Global Emerging Market Banks
On Track for Growth

November 19, 2012

While developed banking markets have been buffeted by headwinds since 2008, GEM banks have proven relatively resilient. In this Blue Paper we examine the key balance sheet themes affecting the largest GEM banking systems. We are confident that overall growth will remain robust and that capital will also support credit expansion, at least in the near term. We present a Focus List of attractive GEM banks for the long term, with a preference for self-funded retail-driven names in underleveraged economies poised for solid real GDP growth.

Social Gambling
Click Here to Play

November 14, 2012

Convergence between online (real money) and social (virtual currency) gambling is the hottest topic in the gambling industry. We see social gambling growing from $1.7bn today to $2.5bn by 2015, and see it as a rich source of customers that could boost growth rates for real money gambling. This Blue Paper looks at the drivers of growth, the key uncertainties, and what this could mean for the leading operators.

Key Secular Themes in IT
Monetizing Big Any Data

September 4, 2012

More than just 'Big Data', democratizing the analysis and use of any type of data should drive increasing budgets for many data-related technologies. Our global survey of 300 IT purchasing managers suggests spending on these technologies should rise to 27.7% of IT spend (23.8% today) over the next three years, while data growth should accelerate to over 50% (from 40% in CY12) given new apps, cloud services, mobile devices, and emerging technologies. We analyze where these impacts are likely to be felt, and which vendors stand to gain or lose.

Chemicals
'Green is Good' – The Potential of Bioplastics

August 22, 2012

In this Blue Paper we investigate the long-term structural opportunities in green chemistry. We focus on the substitution of oil-derived raw materials with renewable ones, particularly in plastics, and identify the opportunities and threats this poses to players across the chemicals value chain.

MedTech & Services
Emerging Markets: Searching for Growth

August 6, 2012

Growth headwinds from falling R&D productivity and increasing government austerity measures have weighed on US and EU MedTech stocks. In this Blue Paper, we explore whether emerging market exposure can provide an offset to these headwinds and lower the risk of further sector multiple contraction – and perhaps even drive an expansion. We look in detail at which market segments could benefit most from EM growth and introduce our global database of 262 EM MedTech stocks.

Commercial Aviation
Navigating a New Flight Path

June 26, 2012

Global financial crisis, Eurozone woes, high fuel prices and record levels of aircraft deliveries have buffeted the commercial aviation sector in the past few years. In this Blue Paper we look at the whether aircraft financing can meet the industry’s needs; examine what it may mean for capacity growth/constraints, both for airlines and airports; and explore who are the likely beneficiaries.

Mobile Data Wave
Who Dares to Invest, Wins

June 13, 2012

The exponential growth in data usage could challenge network capacity by 2014, given the rising number of tablets and smartphones and increasing demand for video. In this Blue Paper, we present a new capacity utilisation model and estimate the cost of network upgrades. We show that operators who invest early – not only to prepare for this growth but also to provide a quality service – are the most likely to see a greater return on capital.

Global Auto Scenarios 2022
Disruption and Opportunity Starts Now

June 5, 2012

In this Blue Paper, our global autos team measures how critical uncertainties (oil price, GDP, EM vs. DM growth, technology) will influence the industry’s future, presenting scenario analyses and ranking the best-positioned and potentially challenged firms. Some large discrepancies between the stocks’ rankings and valuations today suggest that the market’s focus on near-term issues leaves tremendous alpha-generating opportunities for the longer term.

Tablet Landscape Evolution
Window(s) of Opportunity

May 31, 2012

The tablet is the fastest ramping mobile device in history. To measure the rapid rate of change in this important but still nascent market, we revisit our initial Blue Paper published in February 2011 and update our list of global stocks best-positioned and challenged in the tablet market.

Financials: CRE Funding Shift
EU Shakes, US Selectively Takes

May 25, 2012

EU banks have announced plans to reduce commercial real estate (CRE) exposure by $380 billion, of which we estimate $50 billion is US local CRE. In this Blue Paper, we explore whether the US has the capacity and the will to fill i) the $50 billion, and ii) the $518 billion EU CRE funding gap. We look at the US stocks that are most likely to benefit from EU CRE deleveraging and estimate incremental CRE capacity by industry within US financials.

The China Files
The Logistics Journey is Just Beginning

April 24, 2012

China may grow to be the world’s third-largest third-party logistics market by 2016. In this next installment of The China Files series, we identify several factors that will support this growth in China’s 3PL market and discuss how specific trends in the industry bode well for certain logistics-related stocks.

Wholesale & Investment Banking Outlook
Decision Time for Wholesale Banks

March 23, 2012

The market appears to underestimate imminent changes in banking industry structure as banks rationalize their portfolios and market shares shift. Wholesale banks could return to 12-14% ROE in the next two years following this rationalization. We see an increased de-globalization of banks and markets, reinforcing home market advantages as many firms shift to a more domestic focus.

Solvency 2
The Long and Winding Road

March 23, 2012

In this follow-up to last year’s Blue Paper on the same topic, we propose that Solvency 2 is still a force for beneficial change in the insurance industry, but the road to implementation has been longer and more circuitous than originally hoped. Still, we remain confident that the final Solvency 2 framework will permit a mechanism to offset the impact of credit spread widening on capital, and peg strong, well-diversified reinsurers as likely beneficiaries.

Banks Deleveraging and Real Estate
Implications of a €400-700bn Financing Gap

March 15, 2012

Commercial real estate faces a financing gap of €400-700bn, mainly from banks deleveraging. We believe that banks with more exposure to CRE face greater risk and that quoted stocks in the property sector should do relatively better. Private equity has clear opportunities to pick up business from banks.

The China Files
China's Appetite for Protein Turns Global
October 25, 2011

In our most recent China Files report, we look at how China's growing demand for protein foods affects the global economy. Our analysts posit that constraints on local production will force China, already the world's largest importer of soybeans, to boost imports of soft commodities from the US and Latin America.

The US Healthcare Formula
Cost Control and True Innovation

June 16, 2011

Legislative and secular challenges are forcing a sea change in the US healthcare sector. Whether or not US healthcare reform is implemented as proposed, changes to the US healthcare system over the next three to five years will be sweeping—and the investment implications broad. We identify the stocks that are positioned for long-term gain.

Cloud Computing Takes Off
Market Set to Boom as Migration Accelerates 

May 23, 2011

Use of the public cloud could increase twice as fast as the market anticipates—up to a 50% CAGR in the next three years. Our AlphaWise evidence is based on the first cloud migration survey of IT managers across the US, Europe and Asia-Pacific: those using the cloud are expected to rise from 28% to 51% in three years, and the portion of their workload running in the cloud may more than double. Seventeen analysts from seven industries discuss how the shift away from on-premises hardware will affect the IT universe and identify eight companies positioned to capture the cloud.

China High-Speed Rail
On the Economic Fast Track

May 16, 2011

The Blue Paper delves into the macroeconomic and investment implications of the biggest transportation infrastructure project in history—the rapid expansion of China’s high-speed rail system. Through the expansion of this rail line, large sections of China’s population are becoming more mobile, remote regions of the country are opening up, and Chinese businesses are racing to meet under-served consumer demand. Our China strategists see this infrastructure project as the key to sustaining China’s double-digit growth.  

Asia Inflation
Consumers Adjust as Inflation Worsens
March 31, 2011

We see greater risk ahead in Asia's inflation outlook: In this Blue Paper we point to a greater possibility of acceleration to our upside risk scenario of 5.7% inflation in summer 2011. Our AlphaWise results concur: 71% of consumers surveyed in six Asian countries expressed concern over rising inflation. This paper explores the implications for p/e multiples and earnings assumptions and discusses the implications for two baskets of Asian stocks.

Wholesale & Investment Banking Outlook
Reshaping the Model
March 23, 2011

The market underestimates banks' potential to reach RoEs in the mid-teens. To do so, bank management must act decisively to reshape their firms' business models. Yet despite the challenge of new regulations, this Blue Paper finds that three-quarters of banks' revenues are already fit for the new environment. The paper discusses how banks will have to reprice their services, gain scale and cut costs—and which of their institutional clients stand to lose or gain.

Global Gas
A Decade of Two Halves

March 14, 2011

A significant oversupply of liquid natural gas will persist for several years while China boosts local production to satisfy its own gas needs, according to our global gas analysts. But after 2015 supplies will tighten fast.

This Blue Paper draws on the perspectives of analysts from across the firm who cover energy, petrochemicals, renewable energy and utilities. Their thesis goes against consensus expectations for tightening in the markets. In particular they point to regional dynamics and specific investment opportunities along six major themes.  

Tablet Demand and Disruption
Mobile Users Come of Age
February 14, 2011

With the first-ever global tablet survey of more than 8,000 consumers and 50 chief information officers, Morgan Stanley's Global Technology, Media and Telecommunications Equipment team explores demand and disruptions caused by consumers' adoption of tablet computers. This new Blue Paper indicates that similar to the demand for smartphones over the past few years, demand for tablets is likely to surprise to the upside with the possibility of shipments reaching 100 million by 2012.

The China Files
Chinese Economy through 2020
November 8, 2010

To set the stage for the three regional China Files reports on corporates most likely to do well, we delved deeply into the macroeconomic factors behind the trends driving China's megatransition. The main topics in these reports are China's growth outlook and the structural evolution of the economy, China's demographic and labor market trends and the rise of the Chinese consumer.1

The China Files
Asian Corporates & China's Megatransition

November 8, 2010

In the third report in the China Files series, we analyze the influence that China’s macroeconomic “megatrends” may have on Asian multinationals and highlight the Asian companies likely to benefit from these trends.

The China Files
European Corporates & China's Megatransition

October 29, 2010

In the second report in the China Files series, our global analysts describe how the macroeconomic “megatrends” in China will affect European multinationals in China. The team takes stock of which European companies are likely to do well in this changing macro environment and why.

Petrochemicals
Preparing for a Supercyle

October 18, 2010

Morgan Stanley chemicals analysts from around the world discuss what surging emerging market demand means for the global petrochemicals industry.1

Solvency 2: Quantitative & Strategic Impact
The Tide is Going Out

September 22, 2010

Morgan Stanley's European insurance analysts assess the potential impact of Solvency 2 as a catalyst for a fundamental reappraisal of traditional insurance business models. 1

The China Files
US Corporates and China's Megatransition

September 20, 2010

The debut report in our China Files series explores what China's economic transformation means for the global economy and for multinational corporations doing business in China today and over the next 10 years. We describe the "megatrends" that are hastening China's "megatransition" from the world's biggest producer of manufactured goods to its biggest consumer.

In this report our industry analysts from the Asia-Pacific region, Europe, and the US team up with their colleagues from China to identify the criteria required for US multinationals to succeed in China. Together they name the global players that have the best current positioning, strategy, and competitive edge.1

Brazil Infrastructure
Paving the Way
May 5, 2010

Our Latin American team of economists, strategists, and equity analysts examines macroeconomic scenarios connected to infrastructure investment and identifies companies best positioned to take advantage of the opportunities and challenges that investors face as Brazil continues to develop its infrastructure. 1 A macroeconomic analysis offers alternative scenarios for long-term GDP growth based on the level of infrastructure investment, and a team of industry analysts pinpoints the companies that are likely to benefit.

Morgan Stanley chemicals analysts from around the world discuss what surging emerging market demand means for the global petrochemicals industry.1

Footnotes
1Morgan Stanley clients receive stock-specific information related to this report upon its delivery. Additional information on recommended securities/instruments is available upon request. Please contact a Morgan Stanley advisor.

Please note that all important disclosures including personal holdings disclosures and Morgan Stanley disclosures appear on the Morgan Stanley public website at www.morganstanley.com/researchdisclosures.

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