Morgan Stanley: First Impressions

EEMEA Equity Strategy; Dashboard: A Cresting Tide?; MXEE: to buy or not to buy? Following strong market; performance last week (MXEE up 4.1% to 339 level,; 2.7% below our YE 2012 PT), we ask ourselves whether; to chase the rally. We answer ‘no’ as we see valuations; no longer reflecting weak regional economic trends; (EEMEA PMI stagnating around 50 since July 2011),; which have diverged from generally more positive macro; globally. We see three risks to our defensive call: a); falling earnings growth volatility across EEMEA, b) low; hurdle rate from the EM economic surprise index, and c); likelihood of QE-type policies in the US and Europe. We; discuss our views in detail on pp. 2-3 of the weekly,; highlighting downside risks to our EW call on Turkey.; Multiples and performance: For the week ending Jan; 27, MXEE 12MF cons bottom-up P/E expanded to 8.1x,; EV/EBITDA to 4.3x and P/BV to 1.1x. Egypt (+15.6%),; Hungary (+8.1%), Turkey (+7.4%), Poland (+5.2%) and; Russia (+4.4%) led the rally on a country level, while IT; (+7.0%), financials (+6.1%), industrials (+6.0%) and; materials (+5.3%) outperformed among sectors. RU; remains cheapest EEMEA market on a cons 12MF P/E; of 5.4x, while SA, CZ and PL all trade above 11.0x.; Earnings. Bottom-up consensus expects MXEE EPS to; contract by -6.2% in 2012, before growing weakly by; +5.6% in 2013. Current breadth of FY2 EPS revisions; improved to -2.8% (from –6.8% a week ago).; Fund flows and positioning. EPFR GEM funds; positioning for December is out. Across EMEA universe,; Russia and S. Africa gained the most since November,; reducing GEM managers UW by +0.19% and +0.17%,; respectively, the second and third largest allocation; increases in the EM space after Brazil. For the week; ending January 25, net flows into funds investing in; EMEA region remained negative, totaling US$-0.01bn.; On a country level, however, South Africa and Russia; drew large positive inflows (US$0.18bn and US$0.11bn,; respectively), followed by Turkey