Brazil Stocks Cut, Colombia Raised: MS

Brazilian equities were downgraded to equal-weight from overweight by Morgan Stanley, while the bank upgraded Colombian equities from underweight to equal-weight, it says. Brazil’s rankings measuring earnings revisions and earnings growth fell relative to other markets, Morgan Stanley says, and were the main driver of the downgrade. The majority of the negative earnings revisions were in the domestic sectors like financials, industrials, utilities and consumer discretionary. Also, a strong real has driven a mismatch in which domestic demand remains robust while production has weakened sharply, the bank explains. This, in turn, has led to a widening current account deficit and heightened inflation risk. Meanwhile, Colombia’s consistent positive earnings and positive delta in earnings growth forecasts have encouraged an upgrade for its stocks, Morgan Stanley says. The MSCI Colombia index has also sold off recently, and “from a macroeconomic perspective, supportive global conditions and strong domestic demand should continue to underpin a sustained economic expansion,” it says.