Morgan Stanley cuts India to equal-weight amid Iran war risks, warning that disruptions in Strait of Hormuz energy flows could pressure Asian markets and trigger foreign outflows
Global investment bank Morgan Stanley has adopted a more cautious stance on Asian equities and reduced its exposure to India, warning that the ongoing conflict involving Iran could disrupt regional supply chains if energy shipments through the Strait of Hormuz fail to normalise.
In a note dated March 5, Morgan Stanley strategists including Daniel Blake and Jonathan Garner said the bank is turning defensive on the region due to Asia’s heavy reliance on Middle Eastern energy supplies.
“We stay defensive,” the strategists wrote. “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.”
India downgraded on LNG exposure
As part of its latest portfolio reshuffle, Morgan Stanley downgraded India from “overweight” to “equal-weight,” highlighting the country’s vulnerability to potential disruptions in liquefied natural gas supplies from Qatar.
India, one of the world’s largest energy importers, relies heavily on shipments passing through the Strait of Hormuz — a critical maritime chokepoint through which roughly a fifth of global oil and a significant share of liquefied natural gas supplies move.
The strategists warned that if shipping flows through the passage remain disrupted amid the Iran conflict, energy-importing Asian economies could face rising costs and supply shortages, putting pressure on corporate earnings and economic growth.
Investors may wait before returning to India
Morgan Stanley also said global investors may delay increasing allocations to Indian equities amid elevated valuations and uncertainty surrounding the artificial intelligence investment cycle.
According to the note, investors could wait until the technology cycle in South Korea and Taiwan — both heavily exposed to semiconductor manufacturing — peaks before rotating capital back into India.
India has relatively limited exposure to the AI-driven semiconductor boom compared with the tech-heavy markets of Taiwan and South Korea, which have benefited from global demand for chips.
Geopolitical risks reshape energy and market outlook
Morgan Stanley’s move underscores the growing geopolitical risks facing global markets as the war involving Iran threatens to reshape energy trade flows and push up risk premiums across asset classes.
A prolonged disruption in the Strait of Hormuz could send oil and LNG prices sharply higher, intensifying pressure on energy-importing economies across Asia and potentially triggering earnings downgrades for companies dependent on stable fuel costs.
Strategists warned that a sustained energy supply shock could also ripple through the global economy, raising the risk of slower growth and undermining export-driven industries.
Foreign outflows from Asian markets
Investor flows already reflect rising caution.
Since the conflict began, foreign investors have pulled roughly $1.3 billion from Indian equities, Morgan Stanley said.
Other major Asian markets have seen even larger withdrawals. Foreign investors have sold about $1.6 billion worth of equities in South Korea this week, while Taiwan has witnessed approximately $7.9 billion in outflows — highlighting broader risk aversion across emerging Asia as geopolitical tensions intensify.
With inputs from agencies.
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