Morgan Stanley says the equity rotation that followed the US-Iran memorandum of understanding has further to run, pointing to a number of EEMEA stocks that remain dislocated from their pre-conflict valuations.
In a client note issued on Tuesday, analyst Matthew Nguyen identified banks in the UAE, South Africa, Hungary and Turkey, together with UAE real estate names, as the primary beneficiaries of the de-escalation-driven rotation. By contrast, energy and chemicals sectors have generally lagged - a pattern Morgan Stanley attributes to reduced appeal for oil-linked assets as geopolitical risk has eased.
With the initial rally beginning to lose momentum, the bank said it re-examined its universe of winners and laggards to try to distinguish tactical catch-up candidates from those it expects to continue underperforming. That stock-by-stock review aimed to highlight where investors might still find value as market sentiment shifts.
South Africa emerged from Morgan Stanley's review as offering the clearest tactical catch-up opportunities. The bank noted that renewed pressure on precious metals, driven by a perceived more hawkish Fed trajectory, opened the possibility for a short-term rebound in miners of gold and platinum group metals. Within that framework, Morgan Stanley said it continues to prefer gold exposure over PGMs.
UAE equities have seen a meaningful recovery, but the bank observed they have retraced less than half of the drop experienced during the conflict period. Within the UAE, Morgan Stanley stated a preference for Abu Dhabi over Dubai, citing stronger sovereign support for Abu Dhabi and its greater exposure to energy.
Turkish banks have also recovered some ground, but Nguyen cautioned that further gains will be increasingly dependent on sustained confidence in the disinflation process. Morgan Stanley's CEEMEA economists currently expect Turkey's rate-cutting cycle to resume only in the fourth quarter of 2026.
On the energy and chemicals side, several Saudi names including Yansab, Saudi Kayan and Petro Rabigh remain trading above their pre-conflict levels. Morgan Stanley described that relative performance as tactical underperformance rather than evidence of a structural shift, implying these names outperformed following the conflict but may not sustain that position if market drivers change.
Market context
The note reflects Morgan Stanley's effort to map where the rotation has already run its course and where catch-up remains plausible. The bank's conclusions separate regional banking and UAE real estate as recent beneficiaries from energy and chemicals, which have seen more muted responses as geopolitical premia fade.