• Morgan Stanley (MS) says the market rotation after easing Middle East tensions still has room to run.
  • The bank sees catch-up opportunities in South African miners, UAE equities (UAE), and Turkish banks.
  • Energy and chemical stocks have lagged as lower geopolitical risks reduced demand for oil-linked sectors.

Rotation Still Has Legs

The easing of Middle East tensions is driving a market rotation that Morgan Stanley believes still has upside potential. In a note to clients, the bank highlighted catch-up opportunities in South African miners, UAE equities, and Turkish banks, while energy and chemical stocks have lagged as lower geopolitical risk reduced demand for oil-linked sectors.

“Investors are shifting from risk-off assets toward regions and sectors expected to benefit from rebounding growth and policy support,” a Morgan Stanley strategist said, according to people familiar with the matter. The bank’s call implies a continued rotation away from energy stocks and toward more domestically oriented plays.

Regional Plays

South African miners could benefit from a commodity-cycle rebound after recent underperformance, while UAE equities are likely supported by macro stabilization and oil-linked reform spending. Turkish banks may gain from domestic credit expansion and policy normalization as regional risk subsides.

“The precise path will depend on oil dynamics, global monetary policy, and regional stability,” the note cautioned. But with Middle East tensions contained for now, Morgan Stanley sees selective non-U.S. exposure as attractive.

Lagging Sectors

Energy and chemical stocks have paused as oil prices eased with lower geopolitical risk. Morgan Stanley expects this trend to persist unless tensions flare up again. The bank’s stance is a nuanced risk-on call, emphasizing regional catch-up opportunities rather than a universal rally.

Correction: An earlier version of this article misstated the sectors cited by Morgan Stanley. It has been updated to reflect that energy and chemicals were noted as laggards, not financials.