The ceasefire in the Iran war provides a path forward for easing geopolitical tensions and provides an opportunity to re-enter Asian stocks. That’s according to Morgan Stanley’s Singapore and Hong Kong-based equity strategists, who expect investors to return to themes from earlier this year, especially around artificial intelligence supply chains. It is also hoped that interest in more recent themes will increase. “Spending on energy security, defense, and renewable energy is likely to remain strong regardless of the reopening of the Strait of Hormuz,” the strategists said in an April 8 note. Morgan Stanley expects Chinese stocks to rise significantly this year, although there is “high uncertainty” in the coming months. Following news of the two-week ceasefire on Wednesday morning Asian time, mainland China’s CSI300 stock index and Hang Seng index rose more than 4% and 3%, respectively, in the week of the shortened holiday. To identify stock opportunities, strategists looked at companies in the Asia-Pacific region that had 5% or more of their revenue coming from the Middle East and had fallen 5% or more from the end of February to April 7. “While the Middle East conflict may be just one factor in each stock correction, we see this list as likely to benefit from de-escalation and gradual improvement in supply chains,” the report said. The screen focused on regional stocks that Morgan Stanley rates as overweight or equal weight. For China, the three companies that declined by more than 10% during the study period were: Horizon Robotics — Hong Kong-listed automotive chipmaker derives about 10% of its total revenue from the Middle East. Overweight rated stocks fell 16% during the study period. Zoomlion Heavy Industry — Hong Kong-listed construction equipment company derives about 10% of its revenue from the Middle East. Overweight rated stocks fell 15% during the study period. Suzhou TFC Optical Communication — The Shenzhen listed company sells components and manufacturing solutions for producing optical components used in artificial intelligence chips, for example. The company derives about 7% of its revenue from the Middle East. During the research period, Equal Weight stock fell 10.9%. “For China, we expect the resilience of industrial and renewable energy stocks to attract investors’ attention, as the outlook for demand for cleantech solutions leveraging (energy storage systems) could rise significantly,” Morgan Stanley’s report said. “Overall, China is relatively defensive in depressed markets, with its energy security position as a strength,” the report said. “However, a deflationary backdrop and a still-defensive consumer and fiscal outlook continue to headwinds to earnings realization.” China’s factory prices rose for the first time in three years in March as oil prices soared, but the 1% rise in consumer prices was still lower than analysts expected. China is scheduled to release March trade statistics on Tuesday and first quarter GDP on Thursday.
