Japanese equities are being increasingly driven by global oil markets as geopolitical risks rise, according to a new report from Morgan Stanley.
Analysts led by Ukyo Haraguchi wrote in a note to clients that “with oil prices elevated amid geopolitical risk, Japanese equities hinge on oil moves,” adding that “a defensive stance looks appropriate for now.”
The note links the sharp market swings in early March to the outbreak of conflict involving the United States, Israel and Iran on Feb. 28.
Equities “tumbled in the week following the outbreak of the conflict,” the analysts said, while crude spiked as vessels were blocked from the Strait of Hormuz.
Oil briefly eased after President Trump said the conflict was “very close to finishing,” but Morgan Stanley highlighted that as of March 17, the strait “remains effectively closed.”
The bank said it is now “hard not to conclude that Japanese equities are largely driven by developments in the oil market.”
Five-minute interval data for Nikkei 225 futures and crude futures show “particularly strong” co-movement since March 9, when oil began surging.
If high prices persist, Morgan Stanley said “value should outperform,” while low-volatility factors help but require tactical positioning.
The bank also highlighted its Earnings Window Momentum strategy, noting that earnings windows “capture a disproportionate share of stock-specific information” and deliver “durable cumulative and risk-adjusted outperformance,” especially in Japan.
source https://www.investing.com/news/stock-market-news/next-move-in-japanese-stocks-hinge-on-oil-moves-morgan-stanley-says-4566211
