Morgan Stanley has adopted a more defensive stance, downgrading global equities and upgrading cash and US government bonds amid rising oil supply risks from the Middle East conflict, Reuters reported.
The bank lowered global equities to equal weight from overweight and lifted cash and Treasuries to overweight from equal weight, citing “asymmetric outcomes” for risk assets in an environment of surging crude prices.
Oil’s surge spurs caution
Brent crude has surged 59% this month—its steepest rise since the 1990 Gulf War—briefly topping $116 a barrel on Monday.
Morgan Stanley said the magnitude and duration of supply disruptions remain uncertain, making risk assets vulnerable to sharp losses.
If oil prices stay between $150 and $180 per barrel, global equity valuations could shrink by as much as 25%, the bank warned.
Regional downgrades highlight risk reset
The strategists cut exposure to US and Japanese stocks, moving both to equal weight from overweight, though they still favour American equities for their stronger earnings growth outlook.
On Japan, Morgan Stanley noted potential downside from supply chain disruptions and global recession risks should the Strait of Hormuz remain closed for an extended period.
Safe-haven flows return to US markets
The shift marks a reversal from last year, when investors favoured Europe and emerging markets amid trade tensions. Since the latest conflict erupted, flows back into US equities and bonds have accelerated as investors again seek safety in dollar assets.
Morgan Stanley said Treasuries provide better diversification during an oil shock because the U.S. is less dependent on imports than Europe.
Strategy underscores risk repricing
The bank’s move underscores how fast a global energy shock can reshape portfolio allocations. Its focus on liquidity and high-grade duration reflects growing caution across markets.
For investors, the key variable now is the path of crude—and how long supply disruptions persist—before the current defensive tilt can ease.
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