NEW YORK -- Morgan Stanley Asset Management Chairman Barton Biggs is advising clients to scale back stock holdings in the U.S. and emerging markets, saying he is troubled by a large number of declining stocks and the poor performance of small- and medium-size companies and computer-related shares.
Proceeds from selling stocks in the U.S. and emerging markets should be devoted to cash holdings, typically 90-day U.S. Treasury bills, Biggs says in a forthcoming research report.
"The tone of equity markets around the world is deteriorating," Biggs, 65, wrote in the report. "After so many false alarms, a serious decline finally could be coming."
Biggs' formal policy changes won't be released until later in the week, although his comments released yesterday called his "step back" from U.S. and emerging market commitments "nothing dramatic."
He said he continues to expect that bonds will give investors higher returns than stocks in the United States, and for European stocks to beat other equity markets.
Previously, Biggs suggested a model "Global Asset Allocation" portfolio consisting of 51 percent stocks, 47 percent bonds and 2 percent cash.
Of the amount held in stocks, 23 percent was in the United hTC States and 4 percent in emerging markets in Asia, Eastern Europe and Latin America.
"Intellectually, portfolio managers recognize the perils of Asia, overvaluation and [companies' lack of] pricing power," said Biggs, whose investment career at Morgan Stanley started in 1973, just as the worst bear market since World War II got under way.
Biggs said those same money managers still keep most of their holdings in stocks, because holding cash has been a drag on performance throughout this 8-year-old bull market.
"Everyone is relying on their ability to anticipate a bear market, and to protect themselves by selling the Standard & Poor's 500 futures contract short," Biggs said. "This may be a trap."
Pub Date: 5/27/98