Morgan Stanley Says Emerging-Market Stocks May Jump 60% in 2009

By Michael Patterson

Dec. 5 (Bloomberg) -- Emerging-market stocks, mired in the worst annual slump since at least 1988, may rally more than 60 percent next year as governments take “aggressive” steps to bolster economic growth, Morgan Stanley said.

The MSCI Emerging Markets Index will climb 61 percent from yesterday’s closing level to 810 next year, Jonathan Garner, the London-based head of Morgan Stanley’s emerging-markets strategy team, wrote in a research note dated yesterday.

“We expect a fight back from emerging-market equities in 2009,” Garner wrote. “We find the ability and willingness of most emerging-market countries to pursue counter-cyclical policies to be a key difference from previous recessionary environments.”

Resilient consumer demand in Brazil, Russia, India and China, along with interest-rate cuts in 11 developing nations in the past two months, may help cushion economies from the global financial crisis, Garner wrote.

He predicted Asian markets including China and Taiwan will rise the most because governments and businesses in the region have low debt levels. Those countries also have large foreign- exchange reserves, Garner added.

“A good case can be made” that the MSCI emerging-market index won’t fall below a four-year low on Oct. 27 because its drop from last year’s peak is steeper than previous declines and valuations are at “extreme” levels, Garner wrote.

MSCI’s emerging-markets index has tumbled 60 percent this year, a steeper decline than in any year since 1988, when Bloomberg began tracking the data, as the worst financial crisis since the Great Depression pushed the global economy toward a recession. The MSCI China Index has retreated 55 percent in 2008, while the MSCI Taiwan Index has dropped 53 percent.

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net;