Another shocking news has come to light for the Indian stock market which is under pressure due to America-Iran war. Global brokerage firm Morgan Stanley has adopted a cautious stance on Asian stock markets, which includes India. He is worried that if the oil supply through the Strait of Hormuz does not normalize soon, then this conflict in the Middle East could affect the supply chain.
The brokerage believes that India may be most at risk of disruption in the supply of LNG (Liquefied Natural Gas) coming from Qatar. For this reason, the company has reduced the rating of the Indian stock market to equal-weight in its new portfolio change. In investment language, equal weight means keeping a country, sector or share at an average level.
After all, what is the reason?
Morgan Stanley strategists Daniel Blake and Jonathan Garner wrote in a report dated March 5, “We currently remain in a defensive stance.” Asia is still heavily dependent on the Middle East for crude oil, refined products and LNG. We think the market is taking supply chain risks lightly.
US-Iran war impacts Asian markets
The ongoing war between Iran and America has changed the energy supply and risk levels. Concern has increased especially due to the blockage in the Strait of Hormuz. About 20% of the world’s oil is supplied through this route and more than 40% of India’s crude oil is also imported through this route. If the blockage in the Strait of Hormuz continues for a long time, oil and LNG prices may increase. This will put pressure on Asian countries importing energy and companies’ earnings estimates may decrease.
Investors withdrawing money from emerging markets
According to Bloomberg report, global investors are withdrawing money from the emerging markets of Asia. Since the start of the war, foreign investors have withdrawn about 1.3 billion dollars from India. At the same time, even more money has come out in the markets having chip industry. This week, about 7.9 billion dollars of foreign investment has gone out from Taiwan and about 1.6 billion dollars from South Korea.
Will investors turn to India again?
Analysts at Morgan Stanley say that due to uncertainty about the AI sector and high valuations of shares, global investors may wait for now. It is possible that after the tech sector of South Korea and Taiwan reaches its peak, investors will again turn to India.
Rating changed on other countries also
In its new report, Morgan Stanley has reduced the rating of United Arab Emirates (UAE) to equal weight, which was earlier overweight. At the same time, the rating of Taiwan and Saudi Arabia has been increased to equal weight, which was earlier under weight. South Korea has been kept at equal weight, although strategists said the prospects there are good due to strong thematic growth. Apart from this, the company has maintained its overweight rating on Japan and Singapore. In recent months, Morgan Stanley has also added resources sector stocks to its recommendations. The reason for this is the rising prices of copper and other commodities.
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