Brazil stocks 'to outperform' SA

London - Morgan Stanley has cut the allocation to South African stocks in its model portfolio to underweight and raised Brazil back to overweight, the bank said in its emerging markets strategy report on Friday.

"South Africa has outperformed Brazil by around 10% during the period since early June when the MSCI EM index peaked," Morgan Stanley said.

"Brazil's economy is stabilising faster from the initial recessionary implulse, inflation performance is substantially better, currency risk appears lower and sovereign CDS markets are establishing a clear preference for Brazil over South Africa," it added.

Until now, Morgan Stanley was equal weight both Brazil and South Africa.

"The top three ranked countries in our business cycle composite are now overweights -- China, India, Brazil -- where we expect domestic demand trends to be strongest within EM," the note added.

-Reuters