Conflict playbook: Morgan Stanley names stocks to navigate Russia-Ukraine situation

Published Thu, Feb 24 20225:22 AM ESTUpdated Thu, Feb 24 20226:42 AM EST

Morgan Stanley has named a raft of stocks to own — and avoid — as the conflict between Russia and Ukraine ratchets up. Russian President Vladimir Putin invaded Ukraine early Thursday, just days after recognizing the independence of two separatist areas in the east of the country. The rapidly deteriorating situation shook global equity markets, with U.S. futures, European and Asian stock markets plummeting Thursday. Earlier this week, before the invasion began in earnest, Morgan Stanley weighed in on the impact of a potential conflict on equity markets in three separate notes. "As Russia/Ukraine tension escalates, there has been increasing concern whether this might impact economic recovery and hence equity performance in Europe," Morgan Stanley's analysts, led by Ronald Ho, said on Feb. 22, noting that stocks with high revenue exposure to Europe could be impacted more than their peers. The bank's screen for Asia pacific stocks with the highest exposure to Europe turned up several stocks with revenue exposure of more than 50%. Topping the list is Australia's toll roads operator Atlas Arteria , with the company deriving 94% of its exposure from Europe. The list also includes Japan's largest oil and gas explorer Inpex Corp , Hong Kong infrastructure firm CK Infrastructure Holdings , Indian automotive components manufacturer Motherson Sumi Systems and Australian healthcare provider Ramsay Health Care — companies with revenue exposure of more than 60% to Europe. Hong Kong ports operator COSCO Shipping , Japanese pharmaceutical firm Shionogi and Japanese bicycle parts manufacturer Shimano have revenue exposure of more than 50%, according to Morgan Stanley. The bank also screened for stocks with direct revenue exposure to Russia. Japan Petroleum Exploration has revenue exposure of 23%, while Indian pharmaceutical firm Dr Reddy's Laboratories and Japanese power tools manufacturer Makita have exposure of 20% and 18%, respectively. Stocks to own Against this backdrop, Morgan Stanley also highlighted several "stocks to own." In a note on Feb. 21, the bank named a number of stocks it says rank highly on its quality and earnings-per-share revisions metrics, are "above average" in earnings stability and have low price volatility. All are rated overweight by the bank. Several banks turned up on Morgan Stanley's screen, including Hong Kong-listed shares of Agricultural Bank of China , Southeast Asia's largest bank DBS Group and National Australia Bank . Australia & New Zealand Banking Group , Macquarie , Singapore's United Overseas Bank and South Korea's Hana Financial also made the list. Other "stocks to own," according to Morgan Stanley, include Australian biotechnology firm CSL , Hong Kong conglomerate Jardine Matheson and South Korean automotive manufacturer Kia . Chinese sports apparel retailer Li Ning , Taiwanese food conglomerate Uni-President Enterprises and semiconductor chips supplier Unimicron Technology also featured on the bank's screen. Impact on European stocks European equities plummeted Thursday morning, with the MSCI Europe index down over 3% by mid-morning. A day earlier, Morgan Stanley strategist Graham Secker said a downside of 6-8% for the index could be "plausible" if the situation deteriorated. He said a more material escalation of conflict was not priced into the MSCI Europe on Wednesday. The bank's screen for European stocks with revenue exposure to Russia include Nasdaq-listed internet services provider Yandex , which is expected to derive 93.5% of its full-year 2021 revenues from Russia. British steel manufacturer Evraz and Luxembourg-based Global Fashion Group both have revenue exposure of more than 30%, according to the bank. Other European stocks with significant revenue exposure to Russia include energy transition engineering firm Technip Energies , Raiffeisen Bank , Coca-Cola , Austrian energy firm OMV , Carlsberg and Finnish tyres manufacturer Nokian Renkaat.

People stand around a damaged structure caused by a rocket on February 24, 2022 in Kyiv, Ukraine.

Chris Mcgrath | Getty Images News | Getty Images

Morgan Stanley has named a raft of stocks to own — and avoid — as the conflict between Russia and Ukraine ratchets up.