Morgan Stanley is adopting a more cautious stance on Asian equities, trimming its India exposure on concerns that the Iran war may disrupt supply chains if oil flows through the Strait of Hormuz fail to recover.
“We stay defensive,” Morgan Stanley strategists including Daniel Blake and Jonathan Garner wrote in a note dated 5 March 2026. “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.”
The strategists downgraded India from overweight to equal-weight in their latest reshuffle, citing the country as one of the Asian markets most exposed to potential Qatari LNG supply disruptions. 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, they said.
Morgan Stanley’s shift highlights rising geopolitical risks as the Iran war reshapes energy flows and risk premiums. Prolonged disruption in the Strait of Hormuz could lift oil and LNG prices, pressure energy-importing Asia, and trigger earnings downgrades. Concerns are mounting that a sustained supply shock may spark a global economic slowdown, undermining key export industries.
Global investors are pulling money out of emerging Asia’s major markets. Since the war began, foreigners have withdrawn about $1.3 billion from India. Taiwan and Korea have seen even larger outflows this week—$7.9 billion pulled from Taiwan, set to mark foreigners’ biggest weekly exodus from the island, and $1.6 billion taken out of Korea.
Morgan Stanley’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, fuelled by surging AI investment.
In their latest note, the Morgan Stanley strategists also cut the United Arab Emirates to equal-weight from overweight, while upgrading Taiwan and Saudi Arabia to equal-weight from underweight.
South Korea was kept at equal-weight, even as the strategists noted its “powerful thematic drivers”. They also maintained overweight positions in Japan and Singapore.
In recent months, Morgan Stanley has added resource‑themed stocks to its recommended list, citing rising prices in copper and other physical assets. Strong AI demand and data‑centre expansion have driven these gains, with Australian materials and Thai energy stocks poised to benefit, Garner said at a conference in Sydney this week.