The uber-bull: benign economic fundamentals will reign

Morgan Stanley MD and currency economist Stephen Jen is as optimistic about the market as his more bearish peers are downbeat. In his latest piece at Morgan Stanley’s Global Economic Forum, Jen calls the sell-off in sub-prime “healthy”, and says he expects risk-taking to fully recover “after the dust settles.”

Jen’s other cheery insights include:

• “I believe that global economic fundamentals will remain positive and the risky asset prices, in general, should continue to be biased to the upside” - although “some previously over-valued markets may not recover.”
• “The sell-off in the sub-prime mortgage market and in some over-valued emerging equity markets is a healthy development, in my view, as it reflects valuation adjustments toward levels better aligned with the economic fundamentals.”
• “The unweighted P/E average for the Shanghai A-Shares market is still around 36. Corrections in these markets are healthy, and are not a reflection of investors adopting a particularly negative outlook on the global economy; these are merely valuation adjustments.”
  
• “Exchange rates will continue to be driven by cyclical factors, and ‘greed’, not ‘fear’, will dominate in the not-too-distant future.”
• “Wholesale contagion is unlikely.”

“I maintain a structurally constructive outlook on risky assets, based on the opinion that the global economy will remain benign and the global liquidity conditions favorable,” Jen concluded.