Morgan Stanley has urged investors to shift to a defensive strategy. What is his advice?

Morgan Stanley strategists led by Serena Tan have downgraded global equities from "Overweight", which is in line with expectations of above-market growth, to "Equal-weight", i.e. "at market level". At the same time, the bank recommended holding more cachet and U.S. Treasuries, raising its assessment on them to "Overweight," MarketWatch writes.

The strategists are proposing a more conservative portfolio amid a 4.7% drop in the S&P500 index over the past month and an explosive rally in oil prices due to supply disruptions and other effects of the war in the Middle East, the publication notes.

That said, Morgan Stanley analysts still like U.S. stocks: they called them more defensive than securities in other regions, citing positive operating leverage, policies that support economic growth, and the potential for efficiency gains from AI.

The bank's recommendations effectively mean it is giving up on predicting when the war will end and tankers will resume free movement through the Strait of Hormuz, Marketwatch interpreted.

"Uncertainty about the extent and duration of oil supply disruptions is causing scenarios for risk assets to become increasingly asymmetric. In the context of a significant increase in possible losses, we recommend taking a defensive position," the publication quotes the bank's strategists as saying.

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