Morgan Stanley, Credit Suisse link to emerging markets

By Kenneth Lim

Boston, Feb. 26 - Morgan Stanley's "jump" capital-protected notes are fundamentally emerging market foreign exchange securities with an unusual basket of currencies, a structured product analyst said.

The Morgan Stanley 0% notes linked to the performance of a basket of currencies versus the dollar are due Nov. 29, 2010. The basket comprises equal weights of the Australian dollar, Brazilian real, Indian rupee, Mexican peso, Turkish lira and Hungarian forint.

If the basket increases, the payout at maturity will be par plus the greater of $200 (the jump amount) or par plus double the appreciation of the basket.

Investors will receive at least par.

"It's a pretty straightforward structured," said the New York-based analyst. "It tracks the performance of the currencies against the dollar. You have capital protection, which is always a nice thing to have."

The analyst said the inclusion of the Turkish lira and Hungarian forint was unusual.

"It looks almost like you've got mostly BRIC-type currencies here, with the Brazilian real and the Indian rupee, plus the Mexican peso," the analyst said. "I won't speculate why the Turkish and Hungarian are in the basket, but the Turkish lira is quite a volatile currency, and the Hungarian forint may offer sort of a hedge against that. The Australian dollar is a bit of an exception as well. It's quite stable and it's near its all-time high. It's doing really well, but almost every currency has been doing well against the dollar."

The analyst said the product offered an attractive way to gain exposure to emerging market currencies.

"There are some currencies here, like the lira, some investors might not feel comfortable about investing directly in them," the analyst said. "Essentially direct investments in most emerging markets are going to be slightly riskier. A product like this offers you exposure to those markets and currencies with less risk. It's capital protected, so the most you would lose is the interest on your principal."

Credit Suisse ties to emerging infrastructure

Credit Suisse on Tuesday also offered a product tied to emerging markets.

Its 0% accelerated return equity securities (ARES) due Feb. 28, 2013, are linked to the performance of the Credit Suisse/Robert Thomas Emerging Infrastructure Index powered by HOLT.

The payout at maturity will be par plus the 1.2 times the percentage increase in the index level if the index finishes above its initial level. If the final index level is unchanged from the initial level, the payout will be par. There is full participation in any decline in the index. The securities are not principal protected.

The index comprises 50 equally weighted exchange-listed infrastructure-related companies that derive more than 15% of their revenues from emerging markets.

Morgan Stanley links to CPI

Morgan Stanley is also offering floating-rate notes due March 12, 2015 linked to the non-seasonally adjusted U.S. City Average All Items Consumer Price Index for All Urban Consumers.

The notes have an initial interest rate of 6%. The interest rate will be reset, on the 12th of every month beginning April 2008, at the percentage increase of the index plus a spread between 2% and 2.125%, which will be determined at pricing. The notes are non-callable.

Morgan Stanley & Co. Inc. is the agent for the offering.

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