According to Morgan Stanley some EM ripe for rally

US investment bank Morgan Stanley thinks beating might have been overdone for some emerging market assets and currencies. In a note the bank said, that prospects of a tradable emerging markets recovery have improved.

Bank believes lot of bad news have already been priced in and there are now signs of stabilization in China. Emerging market weakness over the longer horizon are likely to persist unless structural and productivity enhancing reforms are taken up. So even if it lives short term, there could be large corrective rally in emerging markets.

Morgan Stanley is advising to buy emerging market currencies with stronger fundamentals such as Indian Rupee and Mexican peso.

This week, Reserve Bank of India (RBI) surprised markets with 50 basis points rate cut, which has led to a rally in Rupee, strengthening from around 66.5 to 65.5 per Dollar.

Indian government has taken up crucial reforms, which makes it a better place in emerging markets to park money. India is likely to beat even China this year in FDI inflow.

On the other hand Mexican currency has fallen for 12 consecutive month battered by lower oil price but government has taken up crucial oil reforms, employment growth gaining pace and manufacturing sector is booming, which might lead to a reversal in currency.