Morgan Stanley picks stocks amid supply chain crisis

Cargo containers stack on top of a ship on November 22, 2021 in Bayonne, New Jersey.

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Morgan Stanley said most acute supply chain disruptions have been eased and will be more fully addressed in the first half of 2022.

That’s the base case the investment bank made in a recent report assessing the global supply chain, its risks and bottlenecks.

This year’s supply chain crisis has hit companies hard as bottlenecks grow and industrial production fails to meet the post-pandemic spike in demand. Energy shortages in China and Europe, as well as Covid-related lockdowns, have contributed to a massive squeeze in the supply chain.

Supply chains remain vulnerable, especially as the world is still assessing the risk of emergence of new strains of omicron, said Morgan Stanley.

“However, Orders have skyrocketed amid concerns about product sourcing, thus increasing backlogs and setting the stage for a better-than-expected short-term, especially for consumer electronics and segments are facing the risk of demand destruction,” the bank’s analysts wrote in a December 14 report.

Morgan Stanley predicts logistics costs will remain “significantly higher” and will “persist through 2022”. “Quarantine and travel restrictions are unlikely to be eased on key transcontinental routes in a coordinated manner through 2022, with little new capacity through the end of 2023.”

For companies that make technology hardware, Morgan Stanley is cautious about those with high backlogs and limited visibility into when demand will return to normal. It said it prefers semiconductor companies exposed to automotive and industrial materials.

The most important stock for the supply chain

The investment firm has identified companies it says are “regional champions” that “recognize their importance to supply chains and the role policymakers can play.. . to support their position against competitive pressure from other spheres of influence.”

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Companies are squeezed by bottlenecks

Morgan Stanley also lists the companies it says are most pressured by supply chain bottlenecks.

“Industries in this category are the strongest transmitters of supply chain pressures, in part because companies in this group face a continued dependence on inputs,” the company said. labor despite increased automation or capital investment”.

Along with other factors such as reliance on trade-sensitive markets or other policy conflicts, this “makes such companies vulnerable to geopolitical and labor dynamics, but is also important to the global supply chain.” Some examples include shipping containers and semiconductor companies.

Such companies may be facing cost pressures, according to Morgan Stanley, but they still retain pricing power thanks to their industry positions.

These are stocks in the category of “bottlenecks”.

“In the face of disruptions and capacity constraints, there are many options other than price increases to offset higher input costs or to increase rations capacity due to backlogs,” Morgan Stanley said. Stanley said companies are facing bottlenecks.


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