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Morgan builds with Bric

Morgan Stanley has introduced the emerging markets growth plan, a capital-protected bond providing exposure to Brazil, Russia, India and China over a five-year term.

The bond is linked to an index, which comprises 40 of the biggest and most liquid companies in the Bric region. Investors will receive a full capital return at maturity plus 75 per cent of the growth. This growth is measured as the difference between closing level of the index on July 6, 2007 and an average of the closing levels on the 6th of every month during the final year of the term. If the final index level is the same as, or below, the Initial Index Level, there will be no growth and investors will receive only their original capital.

Morgan Stanley says growth prospects these countries are attractive due to huge natural resource reserves and a big and well-qualified workforce with low wage levels are growth factors. Consumer demand is increasing as wage levels rise, which is another important factor. However, these markets can be volatile and cyclical, with periods of strong performance often followed by periods of low or negative performance.

Although investors are able to cash in their investment before its maturity date, they may get back less than their initial investment due to limited liquidity for the securities in the secondary market. It may not always be possible to sell the securities when the investor wants to redeem, so the price achieved may be less than the original investment.

Upon early encashment, any returns above the original investment would be subject to income tax, as would the returns at maturity. This tax treatment may put off some investors who prefer plans that charge returns to capital gains tax.


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