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The Global Investment Committee (GIC), which meets monthly to review the economic and political environment and asset allocation models for Morgan Stanley Wealth Management clients, also discusses favored long-term trends that it believes offer worthy investment opportunities. Listed below are the GIC’s favored themes and rationale for investing in them. To learn more about investment opportunities that track these themes, please contact us.

Value Opportunities Remain in Financials
Financials appear poised to benefit from synchronous global economic growth, the strongest since 2009, raising inflation expectations and re-steepening the yield curve. What’s more, a pendulum swing on industry regulations and capital requirements could give financial companies scope for lending growth and share repurchases. READ MORE >

Japanese Equities: An Emerging Growth Story
Loose monetary policy and fiscal stimulus, combined with political and structural reform, may mean that Japanese equities, driven by “Abenomics” and attractively valued, present a rare opportunity after 20+ years of underperformance. READ MORE >

Consider More Aggressive Cash Management
Over the past year, the Fed’s actions have driven rates over 1% inside a 2-year maturity. Investors now have the opportunity to move cash into ultrashort-term fixed income for potentially higher returns. READ MORE >

Emerging Market Equities Present New Opportunities
Emerging markets underperformed the broad market since 2010, but could enter a sustained bull market. Re-priced currencies that are less vulnerable to Fed hikes, improved trade prospects, and declining EM yields may all provide tailwinds.

Neutralize Outsized Style and Factor Exposures
Companies with momentum and aggressive growth outperformed their peers over 2017. Both of these factors now appear poised for reversal. Consider neutralizing factor and style exposure by decreasing growth and momentum while increasing value and quality. READ MORE >

Tax Reform: Opportunities in SMID Caps
Highly taxed sectors and small- and mid-cap companies may benefit disproportionately from the new tax legislation. READ MORE >

Manage Risk of Rising Rates and Spread Widening: Use Credit Long/short and Structured Credit Funds
The GIC believes interest rate normalization will most likely be a slow and measured affair, but will provide a meaningful headwind for investors using bonds for principal preservation. In particular, as rates rise, the GIC expects prices of longer-duration bonds to fall. Target zero/very low bond duration and minimal equity beta. READ MORE >

Manage Broad Global Volatility: Consider Global Macro and Managed Futures

Along with interest rate normalization, the GIC believes capital market volatility will soon normalize, potentially increasing by as much as 30% over the next three-to-five years across bonds, equities, currencies and commodities. Balanced growth investors should focus on adding to global macro and managed futures strategies to mitigate the pickup in broad market volatility. READ MORE >

Focus on Private Credit to Capture the Illiquidity Premium

Private credit markets continue to be impacted by a deleveraging banking system, financial austerity and limited non-bank sources of capital. The current supply/demand imbalance in private lending provides a reasonably rich illiquidity premium and presents attractive risk-adjusted investment opportunities for patient capital. READ MORE >
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