Morgan Stanley Expects Inflation to Worsen in Asia, according to the latest AlphaWise Evidence series

Hong Kong —

Morgan Stanley (NYSE: MS) today announced the release of its latest AlphaWise Evidence Series report, on Asia inflation – a new publication that surveyed 5,270 consumers in six Asian countries: China, India, Indonesia, Japan, Korea and Taiwan. Entitled “Asian inflation: worse still to come: consumers adjust”, the proprietary survey was conducted by Morgan Stanley AlphaWise which carries out evidence-research on behalf of Morgan Stanley Research analysts worldwide. The survey continues the thought leadership which Morgan Stanley has shown in highlighting inflation as a risk to Asian equity market performance.

Key conclusions of the report:

• We continue to see significant upside risks to the upwardly revised inflation outlook

• Downward pressure on consensus earnings and ROE estimates expected

• The upstream Energy and Mining sectors will likely continue to outperform Consumer Discretionary and Financials sectors

• Performance relative trends will likely only reverse once inflation peaks

“A combination of factors could cause inflation in Asia (ex-Japan and India) to peak at a higher level of 5.7% in June instead of our base case scenario of 4.9%,” said Chetan Ahya, Regional Economist for Asia ex-Japan at Morgan Stanley. “These factors include relatively strong domestic demand, recent stronger-than-expected external demand, a lagged response from policy makers and supply shocks in the form of higher food and global commodity prices that bring upside risks to inflation forecasts.”

Additional highlights from the findings:

• 71% of respondents expressed worries about inflation over the next 12 months

• 58% expect the inflation rate to be higher than 6%

• 59% of respondents believe their wage growth will be lower than their expected inflation rate, implying a loss of purchasing power. Interestingly, 45% of them have not seen increases to their household wages over the past 12 months

• 46% of households indicated they would reduce/defer consumption spending in response to higher inflation

Jonathan Garner, Chief Asian and Emerging Market Equity Strategist, said: “We remain below consensus on our target price for Asia Pacific ex-Japan equities with a cautious view due to slowing growth, rising inflation and heightened policy risk.”

In May 2010, Morgan Stanley was ranked fourth by Institutional Investor magazine in the 2010 All-Asia Research poll. The Firm has also earned number one positions in regional economics, consumer, healthcare and pharmaceuticals, Australia and India.

Morgan Stanley AlphaWise conducts evidence-based investment research to help validate key investment debates on behalf of Morgan Stanley Research analysts worldwide. The team employs innovative techniques to derive differentiated insights and forecasts – market research, Web mining, and real-time data sets.

Morgan Stanley is a leading global financial services firm providing a wide range of investment banking, securities, investment management and wealth management services. The Firm's employees serve clients worldwide including corporations, governments, institutions and individuals from more than 1,200 offices in 42 countries. For further information about Morgan Stanley, please visit www.morganstanley.com

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