Morgan Stanley Downgrades Global Stock Market Ratings, stating that if oil prices stay between $150 and $180 per barrel, global stock market valuations could shrink by nearly 25%

According to a report by Reuters, Morgan Stanley cut its rating on global equities and raised its ratings for cash and U.S. government bonds. The move came as investors, amid rising uncertainty driven by the Middle East conflict, favored safe-haven assets. The Wall Street bank downgraded its global equities rating from “overweight” to “equal weight,” while raising the ratings for U.S. Treasuries and cash from “equal weight” to “overweight.”

In a report on Friday, Morgan Stanley strategists said: “Uncertainty about the scale and duration of potential disruptions to oil supply means the outcomes for risk assets are becoming increasingly asymmetrical.”

Buoyed by continued tensions in the Middle East, Brent crude has surged 59% this month, setting a record for the biggest one-month gain and exceeding the increase seen during the 1990 Gulf War. International oil prices have continued to rise during the new week of trading that began late on March 29, Eastern time in the U.S. After the opening, New York crude futures rose to around $103 per barrel. During the session, London Brent crude futures broke through the $116 per barrel level, approaching the intraday peak since the outbreak of the U.S.-Iran conflict.

Morgan Stanley warned that if oil prices remain around $150~$180 per barrel, global equity valuations could fall by nearly 25%. By downgrading the stock market ratings for the U.S. and Japan from “overweight” to “equal weight,” Morgan Stanley reduced its overall equity exposure.

The strategists said: “Given risks related to supply chains and a global economic recession, we maintain an equal-weight view on the Japanese stock market and expect that Japan will face pressure if the Strait of Hormuz remains closed for a long period.”