Morgan Stanley trims India exposure amid Iran risks, warns of Asia shocks

Morgan Stanley has shifted to a more defensive stance on Asian equities, trimming India's exposure to equal-weight as it flags Iran-related risks and the potential for energy-driven supply-chain shocks across the region.

The note points to Asia's heavy reliance on Middle Eastern energy—crude, refined products, and LNG—and warns that prolonged disruption of energy shipments through the Strait of Hormuz could raise energy costs, squeeze corporate earnings, and slow economic growth across energy-importing economies.

India, a major energy importer, is particularly exposed to LNG disruptions from Qatar. The bank highlighted that if Hormuz flows remain disrupted, investors could face higher costs and tighter supply chains, prompting caution on Indian equities even as valuations are elevated and the AI investment cycle adds to uncertainty.

In related developments, Goldman Sachs has warned of potential oil and gas shortages for India amid Hormuz disruptions, noting that tanker traffic has already shown signs of disruption as companies reassess risk. The situation underscores the fragility of energy logistics in a region where a significant share of global oil and LNG moves through Hormuz.

Separately, the IMF has warned that a prolonged Middle East conflict could destabilize global markets by disrupting oil flows and travel routes through Hormuz, adding to energy-security concerns for economies dependent on the region.

Analysts say the combination of higher oil prices and potential supply-chain bottlenecks could heighten volatility across Asia and prompt continued shifts in investment allocations. Brent crude could test around $100 a barrel if Hormuz disruptions persist, amplifying cost pressures for energy-importing economies.

Overall, the note reinforces the need for resilience in energy supply chains and for investors to reassess exposure to volatile energy-linked markets, even as India presents long-term opportunities for growth.

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