Morgan Stanley downgraded global stocks and upgraded U.S. Treasuries and cash, as investors seek safer assets amid increasing uncertainty related to the Middle East conflict.
The Wall Street brokerage reduced its rating on global equities from “overweight” to “equal-weight,” while upgrading U.S. Treasuries and cash from “equal-weight” to “overweight.”
“Uncertainty about the extent and duration of the oil supply disruption means that risk asset outcomes have become increasingly asymmetrical,” Morgan Stanley strategists said in a note on Friday.
Brent crude has surged 59% this month, its largest monthly gain, surpassing the increases seen during the 1990 Gulf War. Futures contracts crossed $116 a barrel on Monday.
The brokerage warned that if oil prices remain around $150 to $180 a barrel, global stock valuations could drop by nearly 25%.
The company reduced its overall exposure to equities by downgrading U.S. and Japanese stocks from “overweight” to “equal-weight.”
“We are neutral on Japanese stocks due to negative risks, as we believe they will come under pressure from supply chains and impacts of a global recession in a scenario where the (Strait of Hormuz) remains closed longer,” the strategists said.
However, Morgan Stanley still prefers U.S. stocks over other regions due to higher earnings growth per share.
ARE U.S. ASSETS BECOMING A SAFE HAVEN AGAIN?
This shift contrasts sharply with most of last year, when investors shunned U.S. assets due to tariff-related uncertainties and shifted their liquidity to European, Japanese, and emerging market assets.
Funds flowing into U.S. stocks and bonds have outpaced the rest of the world since the start of the conflict in the Middle East last month, with investors “reconsidering U.S. assets as a more defensive market,” Morgan Stanley said.
In the event of an oil shock, U.S. Treasuries offer better diversification as the country is less dependent on energy imports than Europe, the strategists added.
