Morgan Stanley: Across Asset Classes, The Capital Structure Increasingly Looks Upside Down

By Andrew Sheet, Morgan Stanley Chief Cross-Asset Strategist

Markets have been stronger than we expected. Some of this story is straightforward, some is not, and strength has come against an unusual backdrop: across asset classes, the capital structure increasingly looks 'upside down'.

Our investment strategy has been based on the assumption that strong DM growth was set to slow sharply as post-Covid stimulus waned and policy tightened at the fastest pace in 40 years. That was the message from both a variety of our leading indicators, as well as our strategy and economic forecasts. Sharp slowing, from an elevated base, has often rewarded defensive positioning, a pattern we thought would unfold again. Valuations did not appear cheap enough to offset the pressure of this slowdown.