Risk markets oversold and due for bounce, Morgan Stanley says

Risk-markets were oversold and more likely to rally than fall over the coming month, one of the world's largest brokers told clients on Monday.

In what Morgan Stanley's cross-asset strategy team termed a 'tactical rebound', the broker's analysts said global equities had already matched the median 'bear-market' in terms of duration and were more than three-quarters through the median price decline.

Significantly, analysts Andrew Sheets, Phanikiran Naraparaju, Serena Tang and Wanting Low pointed out how many asset classes were now near the broker's bear-scenario targets - which incorporated a global recession.

The analysts cited the large recent losses, extreme readings on sentiment and the potential for month-end rebalancing flows among the factors which should send stocks higher, despite the "major uncertainties over global growth and China policy".

Ex-US equities and credit offered investors the best risk-reward relationship, they said, adding that they now "liked" the South African rand and the Australian dollar.

"The US has been our preferred global equity market year-to-date, but it would not be over the next month, as we think its outperformance leaves it with the most downside if data continue to weaken and the least upside if conditions improve tactically."

Its US strategists had also replaced their 'tactical' long recommendation on interest rates with one favouring Treasury inflation-protected securities.

Investors on the other hand would be well-advised to avoid the Japanese yen, Swiss franc and Canadian dollar, Morgan Stanley said.