The US banker is worried about the future earnings potential, worsening global trade and PMI data.
Mumbai: US based investment banker Morgan Stanley foresees limited upside in the equity market, as fears of slowdown grow.
Morgan Stanley, in a report, downgraded global equities from equal-weight to underweight, citing that the upside remains fairly limited from current levels.
Morgan Stanley now expects just 1 per cent average upside to its price targets for the S&P 500, MSCI Europe, MSCI EM, and Topix Japan in the next 12 months.
The US banker is worried about the future earnings potential, worsening global trade and PMI data.
Easier monetary policy-it is expecting US Federal Reserve to lower rates and other central banks also to follow suit--may not help improve the current trend of growth slowing down.
"We think a repeated lesson for stocks over the last 30 years has been that when easier policy collides with weaker growth, the latter usually matters more for returns. Easing has worked best when accompanied by improving data," the global investment bank said in a recent note.
According to the firm, US-China trade tension that was widely expected to be resolved led, instead, to a new round of tariffs, global Purchasing Manager's Indexes (PMIs) have continued to fall, and the Morgan Stanley's Business Conditions Index, a survey of how its equity analysts feel about their companies, suffered its largest one-month decline ever in June.
"We believe all these signals are a risk to equities. Meanwhile, we're mindful of the drop in both liquidity and average returns starting in late July. And, given high expectations of central bank easing, and a number of geopolitical uncertainties, the risk that poor liquidity magnifies bad news seem credible," the note said.
