Insight Article Desktop Banner
 
 
Global Fixed Income Bulletin
  •  
May 15, 2020
The Long and Winding Road
Insight Video Mobile Banner
 
May 15, 2020

The Long and Winding Road


Global Fixed Income Bulletin

The Long and Winding Road

Share Icon

May 15, 2020

 
 

The calamitous events of March quickly receded into memory as markets recovered dramatically in April. In fact, we had 18 months’ worth of bear/bull markets (credit and equities) compressed into those fateful weeks, beginning in mid-March. The S&P 500 was up 13%, its best month since January 1987, while the Bloomberg Barclays US Corporate Index returned 5.2%. We had some of the best days and weeks and some of the very worst all in March/April. Interest rate volatility collapsed and is now close to pre-crisis levels. Yet the world also experienced the worst economic data ever seen, at least over such a short period of time. Every data release in Europe and the U.S. was worse and worse, more often than not exceeding already depressed forecasts/expectations. Yet markets rallied.

 
 

Policies responded: monetary policy, fiscal policy and, just as importantly, health policy responded (or showed strong signs of working). On all three fronts, policy actions were unprecedented. The U.S. Federal Reserve (the Fed) added over $3 trillion to its balance sheet in a matter of weeks. The U.S. Congress passed unprecedentedly large fiscal support packages designed for direct income support and credit support for the corporate sector, partnering with the Fed and banking sector to distribute trillions of dollars of support. In fact, estimates have been made that, as a result of all the policy actions in the U.S., national income (as defined in GDP accounts) will actually be up this year. As with any war -- and this is a war with a virus -- overwhelming firepower frequently wins the day. And, so far policymakers seem to be winning.

Our commentary title last month, “The End of the Beginning,” seems very appropriate. The economic policy war has been won, in that enough support and confidence has been injected into the economy at large to give health policy a chance to slow infection rates to low enough levels to reopen economies. The good news is that this is happening and will likely support asset prices. The bad or uncomfortable news is that we do not know if it will work in North America, Europe and in many emerging countries. First-in-first-out China may provide some clues as to what to expect in terms of recovery patterns. So far the evidence points to sluggish (though potentially bottoming) behavior in the services sector (amid soft consumption), and a more convincing rebound in manufacturing, recently tempered by weak export data (due to falling external demand). The potential for a second wave of infections could also jeopardize a more decisive recovery in economic activity and needs to be monitored. Given all the imponderables surrounding the near future, but taking into account the progress made, cautious optimism is warranted. While we may indeed be on a “long and winding road” the longer your investment horizon, we believe the more confident you should be.

 
 
 
Display 1: Asset Performance Year-to-Date
 

Note: USD-based performance. Source: Bloomberg. Data as of April 30, 2020. The indexes are provided for illustrative purposes only and are not meant to depict the performance of a specific investment. Past performance is no guarantee of future results. See below for index definitions.

 
 
 
Display 2: Currency Monthly Changes Versus USD
 

Source: Bloomberg. Data as of April 30, 2020. Note: Positive change means appreciation of the currency against the USD.

 
 
 
Display 3: Major Monthly Changes in 10-Year Yields and Spreads
 

Source: Bloomberg, JP Morgan. Data as of April 30, 2020.

 
 

Fixed Income Outlook

After the roller coaster and depressing series of events in March, April was a welcome relief. Policy actions were of unprecedented size and structure, showing a degree of coordination (if indirect) of monetary and fiscal policy not seen since the 1940s, helping money markets, government bonds and credit markets to stabilize. Risky assets rebounded and, importantly, government bond yields fell. A synchronized collapse in global economic activity corresponded with a synchronized policy response with implicit messages: “we will do whatever it takes” and “failure is not an option,” wartime slogans appropriate for today’s COVID-19 war.

As the news flow improved, we could characterize unprecedented weakness in economic data and negative oil prices as positive, in the perverse sense that what is at zero can only go up. The combination of massive policy actions on monetary/fiscal/health fronts with the sense -- and it is only a hunch -- that economic activity is reaching a bottom in April/May is leading to better asset market performance. We believe that government bond yields (in general, maybe not for every country) in developed markets, equities and oil bottomed in March/April, and employment will bottom in May. But, where do we go from here after the strong April rallies?

We expect QE to continue in an unlimited way in the coming months across developed markets, even if at a reduced pace given the frenetic interventions in March and April. It is still too soon to be able to tell the ultimate impact that the coronavirus will have on the economy and global markets. Will reopenings cause a second wave of infections? Will travel and leisure activities return to “normal”? What shape or contour will the economic recovery have? V shaped? Not likely, unless there is a miracle healthcare development, given the severe disruptions to the global economy and persistent impact on consumer behavior. Will it be a checkmark recovery, with rebound not as sharp as downturn? Or could it be an L, or a W? We do not know. We do believe risk-free government bond yields will remain low, an unlikely source of return going forward, and that inflation will not be an issue. Because of this, we believe central banks will continue to be accommodative indefinitely, or even expand stimulus to new heights.

A consolidation of the improved risk sentiment observed during April may benefit risky assets. For instance, while the economic and health outlooks look a lot better now, and volatility has retreated, government bond prices and investment grade spreads generally reflect that; that is, a short, sharp recession but no depression. In order to see further compression of corporate bond spreads, whether investment grade or high yield, the economy will need to emerge from lockdown in an orderly fashion. Government support of incomes at their recent pace is probably unsustainable past the summer. The Fed’s TALF program is expected to terminate at the end of September, for example. This of course does not mean programs and support cannot be renewed or expanded, it is just that the medium term cost in terms of debt, lost productivity, lost income and lower future living standards (hopefully only relative to previous expectations) are potentially very high. Therefore, while spreads are still wide of pre-crisis levels, a relatively large amount of near-term optimism is discounted. 

Two sectors underperformed in the April rebound. Emerging Market (EM) debt and securitized credit. The simple reason is that neither benefitted directly from all of the monetary and fiscal support policies announced and implemented in March and April. Therefore, attractive valuations, stabilization in commodity prices, and progress on funding/debt relief initiatives directly targeting EM economies could combine to provide a boost to EM debt in the near term.

Securitized credit also failed to rebound as much as developed market credit (or agency mortgage backed securities) for the same reason as EM. For this reason we believe there is more room for securitized credit to catch up to corporate credit in the months ahead as there is more room for spreads to compress as economies come off the floor, so to speak. New issuance remains very light and secondary selling has slowed substantially, while demand appears to be steadily increasing. Spreads are unlikely to quickly return to pre-COVID-19 levels (but neither are credit spreads in general) given the elevated economic risks from the virus, but we expect spreads to continue to tighten in from current levels. 

While we remain optimistic that the worst is over, so do financial markets, meaning that a second wave of infections requiring a second wave of lockdowns could be deleterious to risky assets. China did not relax its lockdown until it had essentially defeated the virus, and even now social distancing measures and travel restrictions remain in place. Europe and the U.S. are attempting to relax lockdowns while still trying to reduce infections, a much harder battle. Sweden is conducting an experiment of not locking down the economy and absorbing the infection costs with only a focus on social distancing. Is this a harbinger that unlocking economies before the virus is well under control is possible? As every country has its own social norms and is experiencing different infection and mortality rates, we must be careful about generalizing the experience(s) of one country to others. We will know more over time and our investment strategy will adjust to changing facts and valuations.

Developed Markets

Monthly Review

In April, market conditions seemingly began to revert to more “normal” levels as massive government stimulus measures began to work across the developed markets, mainly in the United States. The VIX fell by 19 percentage points after reaching as high as 83 in March.1 Over the month, changes in developed market government 10-year bond yields were mixed. Central bank action remained the driver, with yields falling more where central bank easing was more aggressive and not doing as well where they were less aggressive.

Outlook

Overall, we expect continued monetary policy accommodation across developed markets in the coming months. Having eased aggressively in March and seen market conditions stabilize, it is understandable that most central banks waited to see if further accommodative measures are necessary. This will depend on market conditions and developments in the underlying economy. But, with (upward) inflationary pressures very weak and economies hit by a severe exogenous shock, there is every reason to believe central banks will be ready to ease further, although most will have to do so via unconventional policy measures (e.g. QE and liquidity provision measures) given policy rates in most DM economies are already at the lower bound.

Emerging Markets

Monthly Review

EM assets rallied in April as the impact of monetary and fiscal stimulus from global authorities worked its way through financial markets. EM dollar-denominated corporates led the way in performance, driven by the high yield segment, as well the industrial, consumer, and metals and mining sectors. Domestic debt followed corporates as local bonds rallied and EM currencies strengthened versus the U.S. dollar. Dollar-denominated sovereigns brought up the rear as Latin American countries lagged.2

Outlook

Following the incipient stabilization observed in April, market attention will focus on the gradual easing of lockdown measures in the developed world. First-in-first-out China may provide some clues as to what to expect in terms of recovery patterns: so far the evidence points to sluggish (though potentially bottoming) behavior in the services sector and a more convincing rebound in manufacturing, recently tempered by weak export data. The potential for a second wave of infections could also jeopardize a more decisive recovery in economic activity and needs to be monitored.

Credit

Monthly Review

The key driver of credit spreads in April was a more optimistic expectation for markets as the coronavirus debate moved to strategies to exit the lockdown and the policy response intensified with additional liquidity support for corporates and fiscal grants for labor furloughed as a result of the “shuttering.” The month can be broadly split into two stages, an initial rally from the wide spreads of March, followed by a consolidation toward month-end when spreads rebounded to levels seen in February 2016, when oil was last below $30 per barrel and the base case expectation was for a demand driven recession.3

Outlook

We frame the outlook for credit a simple question: Is now the time to buy? Fundamentals have consolidated, with the optimists citing advances in the path to a vaccine and plans to exit lockdown with the economy supported by the level of policy stimulus/support, while pessimists focus on the risk of reinfection and the economic cost seen in the current weak economic data. Valuations seem to be fair for the current backdrop.

Securitized Products

Monthly Review

The securitized market partially rebounded in April, with spreads tightening to varying degrees, although remaining materially wider across all sectors than pre-COVID-19 levels. There was a clear tiering of recovery, with higher-quality assets and securities receiving support from the Fed and recovering most significantly, while more credit-sensitive securities languished. Fundamental credit conditions remain challenged, with U.S. jobless claims over the last six weeks totaling over 30 million.4

Outlook

We expect to see spreads continue to tighten across most securitized sectors in May. New issuance remains very light and secondary selling has slowed substantially, while demand appears to be steadily increasing. Spreads are unlikely to return to pre-COVID-19 levels given the elevated economic risks from the virus, but we expect spreads to continue to tighten in from current levels. We believe the current market environment represents an attractive investment opportunity, as we believe that current spreads overcompensate for actual credit risks.

 
 

1 Source: Bloomberg, as of 4/30/2020

2 Source: JP Morgan, as of 4/30/2020

3 Source: Bloomberg, as of 4/30/2020

4 Source: Bloomberg, as of 4/30/2020


 
 

RISK CONSIDERATIONS

There is no assurance that a portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the portfolio will decline and that the value of portfolio shares may therefore be less than what you paid for them. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in a portfolio.  Fixed-income securities are subject to the ability of an issuer to make timely principal and interest payments (credit risk), changes in interest rates (interest-rate risk), the creditworthiness of the issuer and general market liquidity (market risk). In a rising interest-rate environment, bond prices may fall and may result in periods of volatility and increased portfolio redemptions. In a declining interest-rate environment, the portfolio may generate less income. Longer-term securities may be more sensitive to interest rate changes. Certain U.S. government securities purchased by the strategy, such as those issued by Fannie Mae and Freddie Mac, are not backed by the full faith and credit of the U.S. It is possible that these issuers will not have the funds to meet their payment obligations in the future. Public bank loans are subject to liquidity risk and the credit risks of lower-rated securities. High-yield securities (junk bonds) are lower-rated securities that may have a higher degree of credit and liquidity risk. Sovereign debt securities are subject to default risk. Mortgage- and asset-backed securities are sensitive to early prepayment risk and a higher risk of default, and may be hard to value and difficult to sell (liquidity risk). They are also subject to credit, market and interest rate risks. The currency market is highly volatile. Prices in these markets are influenced by, among other things, changing supply and demand for a particular currency; trade; fiscal, money and domestic or foreign exchange control programs and policies; and changes in domestic and foreign interest rates. Investments in foreign markets entail special risks such as currency, political, economic and market risks. The risks of investing in emerging market countries are greater than the risks generally associated with foreign investments. Derivative instruments may disproportionately increase losses and have a significant impact on performance. They also may be subject to counterparty, liquidity, valuation, correlation and market risks. Restricted and illiquid securities may be more difficult to sell and value than publicly traded securities (liquidity risk). Due to the possibility that prepayments will alter the cash flows on collateralized mortgage obligations (CMOs), it is not possible to determine in advance their final maturity date or average life. In addition, if the collateral securing the CMOs or any third-party guarantees are insufficient to make payments, the portfolio could sustain a loss.

 
 
 
The Global Fixed Income team follows a seamless process with a global outlook. They seek to identify and capture the potential value in situations where the market's implied forecasts are extreme.
 
 
 
 
 

DEFINITIONS

R* is the real short term interest rate that would occur when the economy is at equilibrium, meaning that unemployment is at the neutral rate and inflation is at the target rate.

INDEX DEFINITIONS

The indexes shown in this report are not meant to depict the performance of any specific investment, and the indexes shown do not include any expenses, fees or sales charges, which would lower performance. The indexes shown are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

The Bloomberg Barclays Euro Aggregate Corporate Index (Bloomberg Barclays Euro IG Corporate) is an index designed to reflect the performance of the euro-denominated investment-grade corporate bond market.

The Bloomberg Barclays Global Aggregate Corporate Index is the corporate component of the Barclays Global Aggregate index, which provides a broad-based measure of the global investment-grade fixed income markets.

The Bloomberg Barclays U.S. Corporate Index (Bloomberg Barclays U.S. IG Corp) is a broad-based benchmark that measures the investment-grade, fixed-rate, taxable corporate bond market.

The Bloomberg Barclays U.S. Corporate High Yield Index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below. The index excludes emerging market debt.

The Bloomberg Barclays U.S. Mortgage Backed Securities (MBS) Index tracks agency mortgage-backed pass-through securities (both fixed-rate and hybrid ARM) guaranteed by Ginnie Mae (GNMA), Fannie Mae (FNMA) and Freddie Mac (FHLMC). The index is constructed by grouping individual TBA-deliverable MBS pools into aggregates or generics based on program, coupon and vintage. Introduced in 1985, the GNMA, FHLMC and FNMA fixed-rate indexes for 30- and 15-year securities were backdated to January 1976, May 1977 and November 1982, respectively. In April 2007, agency hybrid adjustable-rate mortgage (ARM) pass-through securities were added to the index.

Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care.

Euro vs. USD—Euro total return versus U.S. dollar.

German 10YR bonds—Germany Benchmark 10-Year Datastream Government Index; Japan 10YR government bonds —Japan Benchmark 10-Year Datastream Government Index; and 10YR U.S. Treasury—U.S. Benchmark 10-Year Datastream Government Index.

The ICE BofAML European Currency High-Yield Constrained Index (ICE BofAML Euro HY constrained) is designed to track the performance of euro- and British pound sterling-denominated below investment-grade corporate debt publicly issued in the eurobond, sterling

The ICE BofAML U.S. Mortgage-Backed Securities (ICE BofAML U.S. Mortgage Master) Index tracks the performance of U.S. dollar-denominated, fixed-rate and hybrid residential mortgage pass-through securities publicly issued by U.S. agencies in the U.S. domestic market.

The ICE BofAML U.S. High Yield Master II Constrained Index (ICE BofAML U.S. High Yield) is a market value-weighted index of all domestic and Yankee high-yield bonds, including deferred-interest bonds and payment-in-kind securities. Its securities have maturities of one year or more and a credit rating lower than BBB-/Baa3, but are not in default.

The ISM Manufacturing Index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys.

Italy 10-Year Government Bonds—Italy Benchmark 10-Year Datastream Government Index.

The JP Morgan CEMBI Broad Diversified Index is a global, liquid corporate emerging markets benchmark that tracks U.S.-denominated corporate bonds issued by emerging markets entities.

The JPMorgan Government Bond Index—Emerging markets (JPM local EM debt) tracks local currency bonds issued by emerging market governments. The index is positioned as the investable benchmark that includes only those countries that are accessible by most of the international investor base (excludes China and India as of September 2013).

The JPMorgan Government Bond Index Emerging Markets (JPM External EM Debt) tracks local currency bonds issued by emerging market governments. The index is positioned as the investable benchmark that includes only those countries that are accessible by most of the international investor base (excludes China and India as of September 2013).

The JP Morgan Emerging Markets Bond Index Global (EMBI Global) tracks total returns for traded external debt instruments in the emerging markets and is an expanded version of the EMBI+. As with the EMBI+, the EMBI Global includes U.S. dollar-denominated Brady bonds, loans and eurobonds with an outstanding face value of at least $500 million.

The JP Morgan GBI-EM Global Diversified Index is a market-capitalization weighted, liquid global benchmark for U.S.-dollar corporate emerging market bonds representing Asia, Latin America, Europe and the Middle East/Africa.

JPY vs. USD—Japanese yen total return versus U.S. dollar.

The National Association of Realtors Home Affordability Index compares the median income to the cost of the median home.

The Nikkei 225 Index (Japan Nikkei 225) is a price-weighted index of Japan’s top 225 blue-chip companies on the Tokyo Stock Exchange.

The MSCI AC Asia ex-Japan Index (MSCI Asia ex-Japan) captures large- and mid-cap representation across two of three developed markets countries (excluding Japan) and eight emerging markets countries in Asia.

The MSCI All Country World Index (ACWI, MSCI global equities) is a free float-adjusted market capitalization weighted index designed to measure the equity market performance of developed and emerging markets. The term "free float" represents the portion of shares outstanding that are deemed to be available for purchase in the public equity markets by investors. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends.

MSCI Emerging Markets Index (MSCI emerging equities) captures large- and mid-cap representation across 23 emerging markets (EM) countries.

The MSCI World Index (MSCI developed equities) captures large and mid-cap representation across 23 developed market (DM) countries.

Purchasing Managers Index (PMI) is an indicator of the economic health of the manufacturing sector.

The S&P 500® Index (U.S. S&P 500) measures the performance of the large-cap segment of the U.S. equities market, covering approximately 75 percent of the U.S. equities market. The index includes 500 leading companies in leading industries of the U.S. economy.

The S&P/LSTA U.S. Leveraged Loan 100 Index (S&P/LSTA Leveraged Loan Index) is designed to reflect the performance of the largest facilities in the leveraged loan market.

The S&P GSCI Copper Index (Copper), a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark for investment performance in the copper commodity market.

The S&P GSCI Softs (GSCI soft commodities) Index is a sub-index of the S&P GSCI that measures the performance of only the soft commodities, weighted on a world production basis. In 2012, the S&P GSCI Softs Index included the following commodities: coffee, sugar, cocoa and cotton.

Spain 10-Year Government Bonds—Spain Benchmark 10-Year Datastream Government Index.

The Thomson Reuters Convertible Global Focus USD Hedged Index is a market weighted index with a minimum size for inclusion of $500 million (U.S.), 200 million euro (Europe), 22 billion yen, and $275 million (Other) of convertible bonds with an equity link.

 

U.K. 10YR government bonds—U.K. Benchmark 10-Year Datastream Government Index. For the following Datastream government bond indexes, benchmark indexes are based on single bonds. The bond chosen for each series is the most representative bond available for the given maturity band at each point in time. Benchmarks are selected according to the accepted conventions within each market. Generally, the benchmark bond is the latest issue within the given maturity band; consideration is also given to yield, liquidity, issue size and coupon.

The U.S. Dollar Index (DXY) is an index of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners’ currencies.

The Chicago Board Options Exchange (CBOE) Market Volatility (VIX) Index shows the market’s expectation of 30-day volatility.

DISTRIBUTION

This communication is only intended for and will only be distributed to persons resident in jurisdictions where such distribution or availability would not be contrary to local laws or regulations.

United Kingdom: Morgan Stanley Investment Management Limited is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No. 1981121. Registered Office: 25 Cabot Square, Canary Wharf, London E14 4QA, authorised and regulated by the Financial Conduct Authority. Dubai: Morgan Stanley Investment Management Limited (Representative Office, Unit Precinct 3-7th Floor-Unit 701 and 702, Level 7, Gate Precinct Building 3, Dubai International Financial Centre, Dubai, 506501, United Arab Emirates. Telephone: +97 (0)14 709 7158). Germany Morgan Stanley Investment Management Limited Niederlassung Deutschland Junghofstrasse 13-15 60311 Frankfurt Deutschland (Gattung: Zweigniederlassung (FDI) gem. § 53b KWG).  Ireland: Morgan Stanley Investment Management (Ireland) Limited. Registered Office: The Observatory, 7-11 Sir John Rogerson's Quay, Dublin 2, Ireland. Registered in Ireland under company number 616662. Regulated by the Central Bank of Ireland. Italy: Morgan Stanley Investment Management Limited, Milan Branch (Sede Secondaria di Milano) is a branch of Morgan Stanley Investment Management Limited, a company registered in the U.K., authorised and regulated by the Financial Conduct Authority (FCA), and whose registered office is at 25 Cabot Square, Canary Wharf, London, E14 4QA. Morgan Stanley Investment Management Limited Milan Branch (Sede Secondaria di Milano) with seat in Palazzo Serbelloni Corso Venezia, 16 20121 Milano, Italy, is registered in Italy with company number and VAT number 08829360968. The Netherlands: Morgan Stanley Investment Management, Rembrandt Tower, 11th Floor Amstelplein 1 1096HA, Netherlands. Telephone: 31 2-0462-1300. Morgan Stanley Investment Management is a branch office of Morgan Stanley Investment Management Limited. Morgan Stanley Investment Management Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Switzerland: Morgan Stanley & Co. International plc, London, Zurich BranchI Authorised and regulated by the Eidgenössische Finanzmarktaufsicht (“FINMA”). Registered with the Register of Commerce Zurich CHE-115.415.770. Registered Office: Beethovenstrasse 33, 8002 Zurich, Switzerland, Telephone +41 (0) 44 588 1000. Facsimile Fax: +41(0)44 588 1074.

 

Japan: For professional investors, this document is circulated or distributed for informational purposes only. For those who are not professional investors, this document is provided in relation to Morgan Stanley Investment Management (Japan) Co., Ltd. (“MSIMJ”)’s business with respect to discretionary investment management agreements (“IMA”) and investment advisory agreements (“IAA”). This is not for the purpose of a recommendation or solicitation of transactions or offers any particular financial instruments. Under an IMA, with respect to management of assets of a client, the client prescribes basic management policies in advance and commissions MSIMJ to make all investment decisions based on an analysis of the value, etc. of the securities, and MSIMJ accepts such commission. The client shall delegate to MSIMJ the authorities necessary for making investment. MSIMJ exercises the delegated authorities based on investment decisions of MSIMJ, and the client shall not make individual instructions. All investment profits and losses belong to the clients; principal is not guaranteed. Please consider the investment objectives and nature of risks before investing. As an investment advisory fee for an IAA or an IMA, the amount of assets subject to the contract multiplied by a certain rate (the upper limit is 2.20 percent per annum (including tax)) shall be incurred in proportion to the contract period. For some strategies, a contingency fee may be incurred in addition to the fee mentioned above. Indirect charges also may be incurred, such as brokerage commissions for incorporated securities. Since these charges and expenses are different depending on a contract and other factors, MSIMJ cannot present the rates, upper limits, etc. in advance. All clients should read the Documents Provided Prior to the Conclusion of a Contract carefully before executing an agreement. This document is disseminated in Japan by MSIMJ, Registered No. 410 (Director of Kanto Local Finance Bureau (Financial Instruments Firms)), Membership: the Japan Securities Dealers Association, The Investment Trusts Association, Japan, the Japan Investment Advisers Association and the Type II Financial Instruments Firms Association.

U.S.

A separately managed account may not be suitable for all investors. Separate accounts managed according to the Strategy include a number of securities and will not necessarily track the performance of any index. Please consider the investment objectives, risks and fees of the Strategy carefully before investing. A minimum asset level is required. For important information about the investment manager, please refer to Form ADV Part 2.

Please consider the investment objectives, risks, charges and expenses of the funds carefully before investing. The prospectuses contain this and other information about the funds. To obtain a prospectus please download one at morganstanley.com/im or call 1-800-548-7786. Please read the prospectus carefully before investing.

Morgan Stanley Distribution, Inc. serves as the distributor for Morgan Stanley Funds.

NOT FDIC INSURED | OFFER NO BANK GUARANTEE | MAY LOSE VALUE | NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY | NOT A BANK DEPOSIT

Hong Kong: This document has been issued by Morgan Stanley Asia Limited for use in Hong Kong and shall only be made available to “professional investors” as defined under the Securities and Futures Ordinance of Hong Kong (Cap 571). The contents of this document have not been reviewed nor approved by any regulatory authority including the Securities and Futures Commission in Hong Kong. Accordingly, save where an exemption is available under the relevant law, this document shall not be issued, circulated, distributed, directed at, or made available to, the public in Hong Kong. Singapore: This publication should not be considered to be the subject of an invitation for subscription or purchase, whether directly or indirectly, to the public or any member of the public in Singapore other than (i) to an institutional investor under section 304 of the Securities and Futures Act, Chapter 289 of Singapore (“SFA”), (ii) to a “relevant person” (which includes an accredited investor) pursuant to section 305 of the SFA, and such distribution is in accordance with the conditions specified in section 305 of the SFA; or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. This publication has not been reviewed by the Monetary Authority of Singapore. Australia: This publication is disseminated in Australia by Morgan Stanley Investment Management (Australia) Pty Limited ACN: 122040037, AFSL No. 314182, which accept responsibility for its contents. This publication, and any access to it, is intended only for “wholesale clients” within the meaning of the Australian Corporations Act.

IMPORTANT INFORMATION

EMEA: This communication has been issued by Morgan Stanley Investment Management Limited (“MSIM”). Authorised and regulated by the Financial Conduct Authority. Registered in England No. 1981121. Registered Office: 25 Cabot Square, Canary Wharf, London E14 4QA.

There is no guarantee that any investment strategy will work under all market conditions, and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. Prior to investing, investors should carefully review the strategy’s / product’s relevant offering document. There are important differences in how the strategy is carried out in each of the investment vehicles.

A separately managed account may not be suitable for all investors. Separate accounts managed according to the Strategy include a number of securities and will not necessarily track the performance of any index. Please consider the investment objectives, risks and fees of the Strategy carefully before investing.

The views and opinions are those of the author or the investment team as of the date of preparation of this material and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. Furthermore, the views will not be updated or otherwise revised to reflect information that subsequently becomes available or circumstances existing, or changes occurring, after the date of publication. The views expressed do not reflect the opinions of all investment teams at Morgan Stanley Investment Management (MSIM) or the views of the firm as a whole, and may not be reflected in all the strategies and products that the Firm offers.

Forecasts and/or estimates provided herein are subject to change and may not actually come to pass. Information regarding expected market returns and market outlooks is based on the research, analysis and opinions of the authors. These conclusions are speculative in nature, may not come to pass and are not intended to predict the future performance of any specific Morgan Stanley Investment Management product.

Certain information herein is based on data obtained from third party sources believed to be reliable. However, we have not verified this information, and we make no representations whatsoever as to its accuracy or completeness.

This communication is not a product of Morgan Stanley’s Research Department and should not be regarded as a research recommendation. The information contained herein has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This material is a general communication, which is not impartial and has been prepared solely for informational and educational purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy. All investments involve risks, including the possible loss of principal. The information herein has not been based on a consideration of any individual investor circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice. To that end, investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.

Any index referred to herein is the intellectual property (including registered trademarks) of the applicable licensor. Any product based on an index is in no way sponsored, endorsed, sold or promoted by the applicable licensor and it shall not have any liability with respect thereto.

MSIM has not authorised financial intermediaries to use and to distribute this document, unless such use and distribution is made in accordance with applicable law and regulation. Additionally, financial intermediaries are required to satisfy themselves that the information in this document is suitable for any person to whom they provide this document in view of that person’s circumstances and purpose. MSIM shall not be liable for, and accepts no liability for, the use or misuse of this document by any such financial intermediary.

This document may be translated into other languages. Where such a translation is made this English version remains definitive. If there are any discrepancies between the English version and any version of this document in another language, the English version shall prevail.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without MSIM’s express written consent.

Morgan Stanley Investment Management is the asset management division of Morgan Stanley.

All information contained herein is proprietary and is protected under copyright law.

 

It is important that users read the Terms of Use before proceeding as it explains certain legal and regulatory restrictions applicable to the dissemination of information pertaining to Morgan Stanley Investment Management's investment products.

The services described on this website may not be available in all jurisdictions or to all persons. For further details, please see our Terms of Use.

Not FDIC Insured—Offer No Bank Guarantee—May Lose Value
Not Insured By Any Federal Government Agency—Not A Deposit

Privacy & Cookies    •    Terms of Use

©  Morgan Stanley. All rights reserved.

Morgan Stanley Distribution, Inc. Member FINRA/SIPC.