A ceasefire in the Iran war signals a path toward a de-escalation of geopolitical tensions — and an opportunity to re-engage in Asia stocks. That’s according to Morgan Stanley’s Singapore and Hong Kong-based equity strategists, who expect investors to return to themes from earlier in the year around the artificial intelligence supply chain. They also expect greater interest in more recent themes. “Regardless of the reopening of the Strait of Hormuz, spending on energy security, defense and renewables will likely remain robust,” the strategists said in an April 8 note. Morgan Stanley sees broad upside for China stocks this year, albeit with “high uncertainty” in the months ahead. Following news Wednesday morning Asia time of a two-week ceasefire , the mainland China CSI 300 stock index and the Hang Seng Index rose over 4% and 3%, respectively, in a holiday-shortened week. To identify stock opportunities, the strategists screened for Asia Pacific companies generating more than 5% of their revenue from the Middle East, and which had fallen by more than 5% from the end of February to April 7. “While the Middle East conflict may be just one driver of their respective share price corrections, we see the list as potentially benefiting from a de-escalation and gradual improvement in supply chains,” the report said. The screen looked at regional stocks that Morgan Stanley rates overweight or equal weight. For China, the three names that had fallen more than 10% during the time of the study were: Horizon Robotics — The Hong Kong-listed automotive chipmaker sources about 10% of its total revenue from the Middle East. The overweight-rated stock fell 16% in the study period. Zoomlion Heavy Industry —The Hong Kong-listed construction equipment company generates about 10% of its revenue from the Middle East. The overweight-rated stock tumbled 15% over the study period. Suzhou TFC Optical Communication — The Shenzhen-listed company sells parts and manufacturing solutions for producing the optical components used in artificial intelligence chips, for example. The company generates about 7% of its revenue from the Middle East. The equal-weight stock fell 10.9% during the period of the study. “For China, we expect to see resilience in Industrials and Renewable Energy names gain investor attention, as the demand outlook for [energy storage system]-backed cleantech solutions potentially faces a step change higher,” the Morgan Stanley report said. “Overall, China has been relatively defensive in down-markets, with its energy security position a strength,” the report said. “However, the deflationary backdrop and still defensive consumer and fiscal outlook leave headwinds in place for earnings delivery.” The oil price surge helped push China’s factory prices higher in March for the first time in three years, but a consumer price increase of 1% was still softer than analyst expectations. China is due to report March trade data on Tuesday and first-quarter GDP on Thursday.
