Morgan Stanley Downgrades Asian Equities Amid US-Iran War Concerns

Global brokerage Morgan Stanley has turned cautious on Asian equities, including India, in response to the ongoing US-Iran conflict. The conflict has raised concerns about potential disruptions to supply chains, particularly if oil flows through the Strait of Hormuz fail to recover.

Key Findings:

• Morgan Stanley sees India as the most exposed to potential Qatari liquefied natural gas supply disruptions, downgrading it to equal-weight in their latest reshuffle.
• The brokerage believes that Asia remains critically dependent on Middle Eastern supply of crude oil, refined products, and LNG, and that the market is too complacent about supply chain risks.
• Global investors are pulling money out of emerging Asia's major markets, with $1.3 billion withdrawn from India since the war began.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Market Impact:

• Prolonged disruption in the Strait of Hormuz could lift oil and LNG prices, pressure energy-importing Asia, and trigger earnings downgrades.
• Concerns are mounting that a sustained supply shock may spark a global economic slowdown, undermining key export industries.

Portfolio Adjustments:

• Morgan Stanley has downgraded the United Arab Emirates to equal-weight from overweight, while upgrading Taiwan and Saudi Arabia to equal-weight from underweight.
• South Korea was kept at equal-weight, despite highlighting its "powerful thematic drivers".
• Japan and Singapore remain at overweight positions.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Resource-Themed Stocks:

• Morgan Stanley has added resource-themed stocks to its recommended list, citing rising prices of copper and other physical assets.
• Australian materials companies and Thai energy stocks are well positioned to benefit from strong demand for AI and the expansion of data centres.