Eoin Treacy's view

Here is a link to the full report. 

3. Maintain a small overweight to global equities, which enjoy more elevated risk premiums, better 'mid-cycle' performance and higher 12-month forecast returns relative to other asset classes. Our top region is Europe, followed by Japan; both regions have less inflationary pressure, less risk of changing tax or central bank policy and less expensive valuations. We lower US equities to neutral, given higher risks from all these factors.

4. Modestly higher yields and USD; short mortgages: Stronger growth but ample liquidity should keep the rise in yields near forward rates, while we see USD modestly higher in a narrow range. We think the more interesting fixed income story is in mortgages; at negative option-adjusted spreads, they offer an attractive hedge against a more uncertain macro environment.

The lower valuations and greater leverage to global recovery in ex-US developed markets is a significant reason to favour Europe and Japan over the coming years. However, if the Morgan Stanley team are correct in their belief the Dollar will appreciate from here that puts a hole the rationale for favouring ex-US plays or any variety.

The Dollar Index is hanging on to the lower side of its range by its fingernails and the 7-year cycle points to a lower levels. That is the primary reason European and Asian emerging markets have returned to outperformance. They are higher beta, liquidity hungry plays on both low interest rates and a weak US Dollar. That suggests investors are already voting with their feet.