Morgan Stanley picks stocks amid supply chain crisis

Morgan Stanley picks stocks amid supply chain crisis

Cargo containers sit stacked on a ship on November 22, 2021 in Bayonne, New Jersey.

Spencer Platt | Getty Pictures

Morgan Stanley mentioned most acute provide chain disruptions are already easing and can be extra totally resolved throughout the first half of 2022. 

That is the bottom case the funding financial institution specified by a current report assessing the worldwide provide chain, its dangers and chokepoints.

This 12 months’s provide chain disaster has hit corporations exhausting as bottlenecks constructed up and industrial manufacturing failed to satisfy a post-pandemic spike in demand. Power shortages in China and Europe, in addition to Covid-related lockdowns, have contributed to the massive squeeze in provide chains.

Provide chains stay susceptible, particularly because the world continues to be assessing the chance of latest omicron strains, Morgan Stanley mentioned.

“Nevertheless, orders have surged amid nervousness about sourcing product, thus inflating backlogs and setting the scene for a sharper than-expected short-term unwind, notably for client electronics and segments going through demand destruction danger,” the financial institution’s analysts wrote within the Dec. 14 report.

Logistics prices will stay “considerably larger” and can be “persistent by way of 2022,” Morgan Stanley predicted. “Quarantine and journey restrictions are unlikely to be eased for key transcontinental routes in a coordinated trend by way of 2022, with little new capability till late 2023.”

For corporations producing tech {hardware}, Morgan Stanley is cautious on these with elevated ranges of backlog in addition to restricted visibility into when demand will return to regular. It says it prefers semiconductor companies uncovered to autos and industrials.

Shares most vital to produce chains

The funding agency recognized corporations it says are “regional champions,” “recognizing their significance to produce chains and the function that policymakers might play … to assist their place towards aggressive pressures from different spheres of affect.”

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“These corporations have certainly featured prominently by way of the worldwide provide chain challenges of 2020/21, however in broad phrases now we have additionally seen them present stronger profitability developments and considerably outperform the MSCI ACWI world fairness benchmark,” the report mentioned. The MSCI ACWI index is comprised of shares beneath the MSCI world in addition to rising markets indices.

These are the highest shares that Morgan Stanley says are most “central” to produce chains.

Firms squeezed by bottlenecks

Morgan Stanley also listed the companies it said were most pressured by supply chain bottlenecks.

“Industries that fall into this category are ones that most acutely transmit the squeeze of supply chain pressures, partially because the companies within this cohort face persistent reliance on labor inputs in spite of increased automation or capital investment,” the firm said.

Coupled with other factors such as a reliance on markets subject to trade or other policy frictions, this “leaves such companies vulnerable to geopolitical and labor dynamics, but also crucial to global supply chains,” it said. Some examples include container shipping and semiconductor firms.

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