The GIC Weekly's - Morgan Stanley Locator

*Dark blue/light blue/gray fill denotes whether current relative forward 12-month P/E is low/neutral/high relative to history. Source: Morgan Stanley & Co. Research. Performance of Style and Cap Pairs (as of April 6, 2018). Source: Morgan Stanley & Co. Small Cap is represented by the Russell 2000 Index; Large Cap ...
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GLOBAL INVESTMENT COMMITTEE

APRIL 9, 2018

The GIC Weekly The GIC Weekly’s tables and charts start on page 2. Lisa Shalett’s commentary returns in the April 16 issue. LISA SHALETT Head of Wealth Management Investment Resources Head of Investment & Portfolio Strategies Morgan Stanley Wealth Management [email protected] +1 212 296-0335

Upcoming Catalysts April 10 NFIB Small Business Optimism Index April 10 US Producer Price Index April 10 US Wholesale Trade Report April 10 China CPI and PPI April 10 Japan Producer Price Index April 11 US Consumer Price Index April 11 FOMC March meeting minutes April 12 US import/export prices April 12 US initial jobless claims April 12 Euro Zone industrial production April 13 U. of M. Consumer Sentiment Index

Please refer to important information, disclosures and qualifications at the end of this material.

THE GIC WEEKLY

Chart of the Week: China’s Real Trade Narrative After peaking in 2007 at more than 10% of GDP, China’s current account surplus (exports less imports) has continued to decline 12% steadily and was less than 2% of GDP by the end of 2017 (see chart). The surplus fell because of skyrocketing imports. While the 10 brisk import demand has not helped the US much, it has been a 8 boon for Japan, Germany and many emerging market countries. Chinese policymakers have aided the rebalancing between exports 6 and imports by allowing the real exchange rate of the renminbi to the dollar to appreciate by more than 30% during the past 10 years. 4 This fact dispels part of the narrative around China’s trade 2 practices. In fact, China’s policymakers have allowed the renminbi to appreciate 2.5% against the dollar in the past month. 0 1999

China Current Account Balance Percentage of GDP (left axis) Rolling Three-Mo. Real Renminbi/US Dollar Exchange Rate (right axis)

160 150 140 130 120 110 100 90 80

2001

2003

2007

2005

2009

2011

2013

70 2017

2015

Source: Bloomberg, State Administration of Foreign Exchange of China, National Bureau of Statistics China, IMF as of Dec. 31, 2017

Asset Class Performance and Heat Map (as of April 6, 2018) Asset Class

Annualized Returns (%)

Yield

Current YTM 90-Day US Treasury Bills 0.4 1.1 0.8 0.5 0.3 0.3 1.9 1.75 Current Global Equities Div. Yld. US Large-Cap Growth 0.6 19.5 30.2 13.0 16.0 11.5 6.0 1.12 US Large-Cap Value -4.8 6.3 15.1 8.9 10.9 7.4 5.9 2.91 US Mid-Cap Growth 0.0 14.9 22.0 8.0 12.3 9.9 7.3 0.69 US Mid-Cap Value -2.5 9.2 17.0 9.3 12.3 10.4 8.6 2.69 US Small-Cap Growth 0.2 18.7 23.4 9.5 13.4 11.7 9.2 0.58 US Small-Cap Value -3.5 6.3 11.5 7.9 10.8 10.8 8.8 2.53 Europe Equity -0.9 16.8 26.2 5.4 7.0 2.7 4.8 3.46 Japan Equity 0.3 21.0 24.4 8.5 9.1 4.3 3.9 2.06 Asia Pacific ex Japan Equity -3.4 9.3 26.0 5.2 3.4 4.8 8.2 3.87 Emerging Markets 0.7 23.8 37.8 9.2 5.4 3.3 7.8 2.36 Current Global Fixed Income YTM Short-Term Fixed Income -0.1 0.2 0.8 0.7 0.8 1.6 3.3 2.49 US Fixed Income -1.5 0.8 3.5 1.2 1.8 3.6 4.8 3.14 International Fixed Income 2.7 10.0 9.8 4.3 1.3 2.0 4.4 1.11 Inflation-Protected Securities 1.3 6.8 9.0 4.0 1.5 2.9 6.2 High Yield -0.1 6.6 10.4 6.7 5.3 8.3 7.5 5.92 Emerging Markets Fixed. Inc. 3.8 12.5 15.2 5.4 -0.7 3.8 7.4 6.02 Current Alternative Investments Div. Yld. REITs -3.3 6.5 15.0 3.6 5.1 4.2 8.0 4.00 MLP/Energy Infrastructure3 -11.2 -21.0 -6.5 -11.2 -5.8 5.6 8.14 Commodities ex Prec. Metals -1.2 2.9 0.2 -4.3 -9.0 -9.2 0.0 Precious Metals 0.2 1.1 10.9 1.8 -6.1 2.0 6.5 Hedged Strategies4 -0.8 3.4 6.0 0.5 1.3 -0.2 5 Managed Futures -2.3 0.9 2.5 -2.4 -0.2 -2.1 S&P 500 -2.1 12.6 21.8 10.8 13.3 9.5 6.5 1.83 Russell 2000 -1.1 12.4 14.6 8.4 11.5 9.8 7.4 1.51 MSCI EAFE -0.9 16.6 25.6 6.0 6.9 3.2 4.9 3.16 MSCI AC World -1.5 15.0 24.6 8.7 9.8 6.1 5.8 2.42 Note: Performance values calculated using USD. 1. As of March 31, 2018. 2. 20-year average as of Marc