Mumbai: Morgan Stanley has downgraded India to ‘equal weight’ within Asia and Emerging Markets, citing the uncertainty around geopolitical developments and oil supply risks. The brokerage said it remains overweight on Japan, Brazil and Singapore.
“While significant uncertainty remains about the path forward, from a markets perspective, we believe developments in the Middle East remain in an escalation phase and warrant ongoing caution,” said Morgan Stanley’s strategists, including Jonathan Garner, in a note to clients.
The brokerage said India’s improved macroeconomic stability position leaves it less exposed to higher oil prices than historically, but concerns around the fallout of the AI-related disruptions remain. “With uncertainty also still swirling around AI disruption and absolute valuations still expensive, we expect it will take some time – and potentially a peak in the tech cycle for Korea and Taiwan -before international investors reposition towards India,” said Morgan Stanley.
The brokerage said India, Thailand, Korea and Taiwan would be more exposed to growth risks on account of their wider oil and gas balances, while the Philippines, Indonesia and India may face some pressures from wider current account deficits.
“Asia/ EM equities stand at a crucial juncture here, with a baseline of multi-week shipping disruption and uncertainty, and risks of an escalation scenario featuring disruptions more acute than 2022 (which were more concentrated in European energy markets),” said Morgan Stanley. The brokerage said MSCI Asia Pacific fell by 16% between March and July 2022 in the wake of the Russia-Ukraine conflict and energy market impacts, before stabilising briefly, and then falling further amid a global equity correction and tech down-cycle.
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