Emerging marts investors' mania: Morgan Stanley

Global financial services company and one of the largest foreign institutional investors in India, Morgan Stanley, on Tuesday said stock markets in emerging economies are likely to be investors' "mania" in the current decade.

"The scene is being set for emerging markets to be the mania of this decade," Head, Global Emerging Markets, Ruchir Sharma, said in a quarterly newsletter for Morgan Stanley Mutual Fund.

Sharma said emerging markets were the biggest beneficiaries of the US Federal Reserve rate cut in September and are trading at the same valuation as developed markets for the first time since mid-1990s.

"The price-to-earnings ratio, based on one-year forward earnings is 14 for both the asset classes, developed and emerging markets," Sharma said.

The Federal Reserve cut its key rates by 50 basis points on September 18. This, in turn, led to a flow of billions of dollars into emerging markets and pushed up stock indices to record highs.

Sharma said emerging markets are likely to trade at a "considerable premium" to developed markets by the end of the current investment cycle.

"The power of P/E expansion is illustrated by the fact that if emerging markets such as India go back to their 1994 P/E ratios, there could be another 60 per cent gain for this asset class," he said.

In September 1994, emerging markets were trading at a P/E multiple of 22-25 per cent premium.