Economics & Strategy: Equity Strategy – Third

Graham Secker & team, Morgan Stanley

Graham Secker’s group of seven at Morgan Stanley rises from runner-up to third place. One portfolio manager commends the team for being “more realistic about the outlook for European markets, compared with competitors.” The London-based strategists began emphasizing defensive plays in the first quarter of 2011 on the belief that European Central Bank rate hikes would drive investors away from cyclicals; they highlighted their overweight recommendation on the telecommunications sector in March and upgraded consumer staples from equal weight to overweight in April. By the end of last year, those sectors had outperformed Europe’s broad market by 2.8 and 19.9 percentage points, respectively. This year, with macroeconomic issues remaining at the fore, Secker says investors will need to focus on issues such as the extent to which European margins will narrow — the team is assuming a contraction of 100 basis points, on average — and “who loses most from European bank deleveraging: most likely banks themselves, small and midcaps, highly indebted companies, and the Eastern Europe, Middle East and Africa region.”