Turkey shares downgraded

Bloomberg

The ratings were changed because an earlier methodology didn’t do "justice" to countries able to sustain higher returns on equities, strategists led by Jonathan Garner wrote in a report dated June 25. The ratings now reflect a preference for banks and telecommunications companies, they said.

Garner, Morgan Stanley’s chief Asian and emerging-markets strategist, said last week the MSCI Emerging Markets Index may rise to 985 in the next 12 months. That’s a 30 percent gain for the index, which has already rallied 33 percent in 2009. The measure added 0.8 percent to 756.29 as of 1:21 p.m. in Singapore.

Burst of outperformance

"It is a good time to initiate an underweight of Korea after a burst of relative outperformance of 8 percent since the start of the month," the analysts wrote. "Negative sentiment towards Mexico is now reflected in stock market performance, and we think an ’equal-weight’ stance is more appropriate in the short term."

Emerging-market stock funds lost $1.87 billion in the week ended June 24, the first week of net outflows since early March, on concern that a rebound in exports will be delayed, EPFR Global said. Investors withdrew $660 million from funds investing in Asia excluding Japan and pulled $457 million from Latin American equity funds, the research firm said in astatement yesterday.

South Korea, Turkey and Hungary were cut to "underweight" from "equal-weight," while Israeli equities were lowered to "equal-weight" from "overweight" at Morgan Stanley.

Thebrokerage upgraded Mexico and Indonesia to "equal-weight" from "underweight." Morgan Stanley raised its recommendation on Czech stocks from "equal-weight," joining China, India, Taiwan and Malaysia among the markets rated "overweight." Peru was rated"underweight" in new coverage by Morgan Stanley, the report added.

"We still retain a clear preference for Asia over Latin America, Europe, Middle East and Africa," the analysts wrote. "This is largely consistent with the pattern of regional grossdomestic product growth expectations using Morgan Stanley economists’ forecasts." The world economy will contract 2.9 percent this year, the World Bank said in a June 22 report. Growth will be 2 percent next year, it added.