11:28 AM EDT, 04/23/2024 (MT Newswires) -- XP's (XP) slower business momentum is unlikely to drive outperformance amid expected higher-for-longer interest rates, Morgan Stanley said in an emailed note to clients Tuesday.

The investment firm expects XP's inflows into equities to be slower on the back a forecast for those higher rates to persist.

"With inflation expected at 3.5% to 4% over the next two years, we anticipate that the real returns on simple/inexpensive bank [certificate of deposits] will remain appealing, thereby preventing a significant shift of retail assets into the investment industry, especially into equities," Morgan Stanley said.

Morgan Stanley expects XP's total assets under custody to increase 16% in 2024 and 15% in 2025, compared with its previous estimates of 22% and 19%, respectively. Equity assets are expected to account for 27% of total assets under custody by the end of 2025, versus 31% previously, according to the note.

"XP is well positioned to capture market share from incumbents due to its highly synergistic business model, robust product offering and leading [Independent Financial Advisor] network," Morgan Stanley said.

Morgan Stanley downgraded XP's rating to equal weight from overweight and cut its price target to $24 from $31.

Price: 20.77, Change: -0.34, Percent Change: -1.63