Risk appetite back, mkts may move further: Morgan Stanley

Jonathan Garner, Head-EM Strategy, Morgan Stanley said emerging markets will trough before developed markets. He feels that global markets are not out of the woods yet.

However, he added that risk appetite has returned post March and that markets can move up further.

Garner said that excess valuations were flushed-off in India and China in March. "India has lost all of valuation premium, catching up with Asia," he said.

Moreover, Garner expects only modest sequential improvement in earnings. He is cautious on industrials and select banks and prefers defensives like telecom, pharma and consumer staples area.

We made a controversial call last year. We said we thought the trough was already in on October 27 for emerging markets (EMs), and that EMs would trough before the developed markets, and it is increasingly looking like that happened with the S&P likely having troughed at the beginning of March. We have had an Asian lead fight back which is what we were looking for in the markets. The reason this happened is we are looking at grievously undervalued levels. Last October, we briefly traded at a price to book value of 1 for the first time since September 1998 and the underlying fundamentals of EMs especially that of self help that counter cyclical policy action is much bigger than in 1998.