US-Iran war: Global brokerage Morgan Stanley has turned cautious on Asian equities, including India, amid concerns that the conflict in the Middle East could disrupt supply chains if oil flows through the Strait of Hormuz fail to recover.
The brokerage sees India as the most exposed to potential Qatari liquefied natural gas supply disruptions, therefore downgrading it to equal-weight in their latest reshuffle.
“We stay defensive,” Morgan Stanley strategists, including Daniel Blake and Jonathan Garner, wrote in a note dated March 5, according to a Bloomberg report. “Asia remains critically dependent on Middle Eastern supply of crude oil, refined products and LNG, and we believe the market is too complacent about supply chain risks.”
US-Iran war clouds Asian market outlook
The war between Iran and the US has reshaped the energy flows and risk premiums, especially amid disruption in the Strait of Hormuz, through which nearly 20% of global oil flows and over 40% of India’s crude imports transit.
Prolonged disruption in the Strait of Hormuz could lift oil and LNG prices, pressure energy-importing Asia, and trigger earnings downgrades, said the brokerage. Concerns are also mounting that a sustained supply shock may spark a global economic slowdown, undermining key export industries.
According to the Bloomberg report, global investors are pulling money out of emerging Asia’s major markets. Since the war began, foreign investors have pulled about $1.3 billion from India. Chip-focused markets such as Taiwan and South Korea have experienced even larger outflows this week, with $7.9 billion withdrawn from Taiwan — putting it on track for the biggest weekly foreign investor exit from the island — and $1.6 billion leaving South Korea.
With uncertainty around AI and high valuations, global investors may wait — possibly until South Korea and Taiwan’s tech cycle peaks — before shifting back toward India, analysts at Morgan Stanley said.
The brokerage’s latest changes come about a week after predicting that emerging markets are poised for their strongest earnings growth stretch since the 2002–2004 super‑cycle, fueled by surging AI investment.
In their latest note, Morgan Stanley strategists downgraded the United Arab Emirates to equal-weight from overweight, while upgrading Taiwan and Saudi Arabia to equal-weight from overweight.
South Korea was kept at equal-weight, even though the strategists highlighted its “powerful thematic drivers.” They also maintained overweight positions in Japan and Singapore.
In recent months, Morgan Stanley has also added resource-themed stocks to its recommended list, citing rising prices of copper and other physical assets. Strong demand for AI and the expansion of data centers have supported these gains. As a result, Australian materials companies and Thai energy stocks are well positioned to benefit, Garner said at a conference in Sydney this week.
(With inputs from Bloomberg)
Disclaimer: This story is for educational purposes only. We advise investors to check with certified experts before making any investment decisions.
