European equities have been downgraded to “underweight” by Morgan Stanley. The American Commercial Bank justified the decision citing fears of inadequate policy responses and slowing economic growth as a result of possible additional austerity measures and deleveraging.
The downgrade also reflects increased pressure from deteriorating European corporate margins. For these reasons, Morgan Stanley increased its "underwight" on European financials, explaining that banks are exposed to the deterioration of the European economy and that their earnings will likely be penalized by a significant deleveraging.
“Until we see the emergence of a credible solution to sovereign problems – reads a note from the institute -. The financial sector should continue to hurt after a brief rally next month." The Bank instead increased its "overweight" on pharmaceuticals from 2 to 4%, emphasizing that companies in this sector tend to do relatively better when the euro depreciates against the dollar.
