Morgan Stanley backs recovery and Aussie dollar strength

“The V-shaped recovery we expect should help investors transition into a mid-stage bull market mindset for risk assets by year-end,” says a note from the team led by managing director Matthew Hornbach.

An unprecedented rush into investment markets this year by private investors has been given a major boost by global investment bank Morgan Stanley pushing a bullish call for the months ahead on a forecast of improving economic fundamentals and a stronger Australian dollar.

The New York investment bank has been among the most upbeat commentators on sharemarkets this year, with its chief US equity strategist Michael Wilson being one of the first major commentators to “call” the end of the rapid global sharemarket crash when he said markets had “bottomed” on March 16.

The bank has since upgraded its outlook for the Australian sharemarket suggesting the S&P/ASX 200 (currently below 6000) has a 12-month target of 6200.

Now its fixed income team has reiterated bullish sentiment in its mid-year outlook.

The investment bank says US and global markets can rebound despite the deep concerns over the pandemic and rising unemployment.

“The V-shaped recovery we expect should help investors transition into a mid-stage bull market mindset for risk assets by year-end,” says a note from the team led by managing director Matthew Hornbach.

The research note argues that unemployment will not have to return to pre-COVID levels for the economy to recover.

With most economists expecting the US unemployment rate to be at 10 per cent later this year, Morgan Stanley says: “As we saw in the post-GFC period, US personal consumption, in real terms, returned to pre-crisis levels when the unemployment rate was still 9 per cent.”

With markets remaining highly volatile, a NAB survey has shown a major resurgence of private investors in the Australian sharemarket through the crash in the subsequent rebound in recent months.

Trading volumes ‘almost doubled’

A report this week from NAB said trading volumes on its broking platform almost doubled through the three months to the end of May, with new applications from retail investors at NABTrade up 360 per cent over the past quarter.

The Morgan Stanley report also identified the Australian dollar (currently at US69c) as a leading currency that is expected to rebound in the months ahead. The investment bank sees our currency trading up to US73c by the end of the year and US74c next year.

Nathan Lim, head of wealth management research at Morgan Stanley Australia says the currency movement forecast largely reflected an expected general weakening in the US dollar in the months ahead.

“Our economists have chosen ‘V’ to represent the shape they see the path of global output — both for the G10 and the global economy. Despite the one letter our economists chose, one word comes to mind when most investors consider prospects for the V-shaped recovery: Doubt. Investors aren’t alone in this assessment. Most politicians and central bankers around the world share the concern – something that actually helps reduce our own doubts about the V-shaped rebound,” said the report.

The bullish note from Morgan Stanley arrives as a key rival, Citi, warned Monday that financial markets were heading for a “comeuppance”, with chief global economist Catherine Mann warning of a “striking disconnect” between markets and economic reality.

The Morgan Stanley outlook does carry caveats, particularly a warning that any problems or delays around the Trump administration’s $US1 trillion ($1.45 trillion) stimulus plan could change the outlook and “darken” the banks upbeat view of the months ahead.

Wealth Editor James Kirby will present “Financial Advice – Where to start?” A one-time only Facebook live event this Wednesday June 24 at 7.30pm.