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A synopsis of the major reports issued globally by Morgan Stanley strategists in the past week. Please see full versions of these articles on our Client Link Website. Please contact your Morgan Stanley representative for access if needed.

US Equity Strategy: The Green Mile: Dollar Drives Rotation Further
Abhijit Chakrabortti, Jason Todd
First phase of dollar rally should cause continued rotation in market leadership, but will eventually create conditions for more bullish outlook by lowering energy/commodity prices, reducing inflation risks, and setting stage for multiple expansion. Given weakening global growth, strengthening dollar, and falling commodity prices, our trades are: US outperformance vs. EAFE; underweight global cyclicals/overweight domestic cyclicals; overweight banks vs. SPX; overweight earnings certainty.

Europe Equity Strategy: The Return of Valuation Factors
Edmund Ng, Teun Draaisma
Valuation factors will soon be key stock-picking factors again, we believe, as valuation dispersions between cheap and expensive have reached extreme levels in recent months - almost the perfect leading indicator for cheap stocks to outperform. We also highlight that the drop in headline inflation we expect from September 2008 tends to coincide with valuation factors working again as a stock-picking tool. We continue to believe adequate balance sheet strength is the first hurdle to overcome.

GEMs Equity Strategy: Buy Back - Favour Taiwan in Asia, Rotate from Energy to Tech
Garner, Wang, Silva
We upgraded our weighting for EM equities to 6% overweight on 11 July. There is currently 26% upside potential to our scenario-weighted 1H09 target price of 1240. Deterioration in growth outlook is much less of an issue in EM than in developed markets. Inflationary pressures will likely moderate in 4Q08 based on declining excess liquidity and base effects. Valuations are highly attractive to history; earnings growth expectations are stabilizing; and the market looks oversold on technicals.

Commodity Strategy: Can Commodities Buck the Buck?
Hussein Allidina, Jeremy Friesen
Commodities have benefited from a weakening US dollar, but they may not lose equally with a rebounding dollar. While the two asset prices are strongly related, their relationship has not been constant ? though we believe it may be predictable. Specifically, we argue that a rising USD implies a much weaker relationship than we have observed through the past dollar depreciation trend. Net, a near-term appreciation in the USD should bring less of a headwind than is expected.

UK Equity Strategy: Summer Stock Screens
Graham Secker, Charlotte Swing
We have updated a number of our regular stock screens. The majority of screens are valuation-oriented, which fits with our recent pan-European strategy report (The Return of Valuation Factors, August 14, 2008), which suggested that value factors should start to outperform again soon. However, we also include screens on balance sheet strength, US dollar exposure, buybacks and director buying.

China Portfolio Strategy: Still Tough Roads Ahead: Replacing Growth with Value
Jerry Lou, Allen Gui
Many signs suggest the Chinese economy is slipping into a cyclical downturn, although the reported numbers on GDP and consumption are not showing that yet. Although we are still strategically bullish on Chinese consumption in the long term, we see a potential de-rating in high-valuation sectors as a threat to our Model Portfolio in the near future. We advise investors to shift from growth to value in their near-term portfolio strategy.

Japan Equity Strategy: Focus List: Moderate Shift to Blue Chips
Naoki Kamiyama
We await a return of funds to global stocks and anticipate a moderate shift to blue chips. We switch Materials from overweight to market-weight, Consumer Discretionary from underweight to market-weight, and Healthcare from market-weight to overweight.

India Equity Strategy: P/E: A More Critical Driver than Earnings in the Coming Months
Ridham Desai, Sheela Rathi
Multiples will likely drive the market: Since their January 2008 high, Indian equities are down 39% (MSCI India index in USD terms). The entire fall is due to the compression in the trailing P/E, which is down 49% YTD. For the next 12 months, we think change in the trailing multiple will explain the bulk of the index return. A change in India's P/E is inversely proportional to a change in long bond yields, and the fall in P/E can be arrested only when bond yields stop rising.

A synopsis of the major reports issued globally by Morgan Stanley economists in the past week. Please see full versions of these articles on our Client Link Website. Please contact your Morgan Stanley representative for access if needed.

Global Economics: Rates Roundup: Less than Meets the Eye
Joachim Fels
Market participants now hope that central banks will shift from fighting inflation to easing policy in order to fight slipping growth. In most cases, these hopes are likely to be disappointed. Rate hikers are still likely to outnumber rate cutters around the globe by 16 to 2 in the remainder of this year, on our forecasts. Even next year, there should still be more hikers than cutters. Real rates are negative in many countries, limiting the room for easing, and underlying inflation pressures will be stubborn

Currencies: On the Link Between the Dollar and Oil
Stephen Jen
The USD and oil are likely to remain negatively correlated for some time. The performance of the USD will continue to be partly determined by the evolution of oil prices. For the global economy, a strong dollar/low oil price combination is much better than a cheap dollar/high oil price. Calmer commodity prices should also temper the hawkish bias of some inflation-targeting central banks.

Europe Economics: A Poor Summer Scorecard
Elga Bartsch, Carlos Caceres
We tweak our 2008 growth estimate to 1.3% from 1.4%, but leave our 2009 forecast unchanged at 1%. The 2008 reduction is based on the slightly larger contraction in 2Q GDP and a small downgrade to our 3Q and 4Q GDP estimates. Chances of a full-blown recession like the one in the early 1990s remain remote and might start to recede as the euro, oil price, and interest rates have eased in recent weeks. But it will probably take until late this year before the first signs of a recovery materialise.

Japan Economics: Recession: Short and Shallow, or Long and Deep?
Takehiro Sato
It is possible that Japan will see a long and deep recession, rather than the short and shallow version that the consensus is expecting. Our main scenario is for the economy to hit bottom in Jan-Mar 2009, but the risk is that it will be deeper and longer. That scenario could occur if there is (1) further credit tightening in Japan and abroad, (2) a hard landing for emerging economies, and (3) more income outflow to resource-rich nations.

China Economics: Slowdown, Not Meltdown; Easing, Not Stimulating
Qing Wang
An exports-led slowdown is well underway, but it is far from the economic meltdown feared by some observers. We maintain our full-year 2008 GDP growth and CPI inflation forecasts at 10% and 7%. In the face of further deterioration in external environment and energy price normalization, we expect GDP growth in 2009 to decline to 9%. We expect non-food price inflation to continue to creep up, with headline CPI to reach 4.0% in 2009. Policy easing is underway.

Hong Kong Economics: 2Q08 GDP Contraction - Consumption Collapse
Denise Yam
Private consumption was hurt by inflation and stock market correction: The negative wealth effect from the stock market correction since late 2007 is finally taking its toll on consumption, which only gained 3.1% YoY in real terms. Elevated food inflation squeezed out discretionary consumption in services and outbound travel. Our 2008 GDP growth forecast is lowered to 4.7%, from 5.5%, and our 2009 growth forecast goes from 5% to 4%.

South Africa Economics: Strong 2Q08 GDP Print
Michael Kafe, Andrea Masia
At 4.9%Q, supply-side GDP data show that South Africa's underlying GDP growth could be stronger than expected by the market. The data point to a very strong performance in agriculture and a technical rebound in mining and manufacturing. Our GDP forecast for the year is now 3.7%, still higher than consensus of 3.3%, thanks to our view that electricity shortage will be less restrictive than expected. We reiterate view that trough in growth will be in 2009.

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Analyst Certification

The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Michelle Bradley, Ronan Carr, Jocelyn Chu, Ridham Desai, Teun Draaisma, Jonathan Garner, George Goncalves, Rizwan Hussain, Jerry Lou, Gerard Minack, Corey Ng, Gregory Peters, Janaki Rao, Sheela Rathi, Adam Richmond, Vinicius Silva, Ryan Tsai, Michael Wang, Malcolm Wood.

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Morgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight or Underweight (see definitions below). Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight and Underweight are not the equivalent of Buy, Hold and Sell. Investors should carefully read the definitions of all ratings used in Morgan Stanley Research. In addition, since Morgan Stanley Research contains more complete information concerning the analyst's views, investors should carefully read Morgan Stanley Research, in its entirety, and not infer the contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as investment advice. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations.

Global Stock Ratings Distribution (as of July 31, 2008)

For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside our ratings of Overweight, Equal-weight and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, and Underweight are not the equivalent of buy, hold, and sell but represent recommended relative weightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most positive stock rating, with a buy recommendation; we correspond Equal-weight to hold and Underweight to sell recommendations, respectively.

	Coverage Universe		Investment Banking Clients (IBC)
Stock Rating Category	Count	% of Total	Count	% of Total IBC	% of Rating Category
Overweight/Buy	909	42%	290	45%	32%
Equal-weight/Hold	913	42%	270	42%	30%
Underweight/Sell	348	16%	83	13%	24%
Total	2,170		643

Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan Stanley or an affiliate received investment banking compensation in the last 12 months.

Analyst Stock Ratings

Overweight (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.

Equal-weight (E). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.

Underweight (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.

More volatile (V). We estimate that this stock has more than a 25% chance of a price move (up or down) of more than 25% in a month, based on a quantitative assessment of historical data, or in the analyst's view, it is likely to become materially more volatile over the next 1-12 months compared with the past three years. Stocks with less than one year of trading history are automatically rated as more volatile (unless otherwise noted). We note that securities that we do not currently consider "more volatile" can still perform in that manner.

Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months.

Analyst Industry Views

Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be attractive vs. the relevant broad market benchmark, as indicated below.

In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be in line with the relevant broad market benchmark, as indicated below.

Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant broad market benchmark, as indicated below.

Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index; Europe - MSCI Europe; Japan - TOPIX; Asia - relevant MSCI country index.

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