Morgan Stanley picks ‘regional champions’ and stocks most pressured by the supply chain crisis

Cargo containers sit stacked on a ship on November 22, 2021 in Bayonne, New Jersey.

Spencer Platt | Getty Images

Morgan Stanley said most acute supply chain disruptions are already easing and will be more fully resolved within the first half of 2022. 

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

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

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

“However, orders have surged amid anxiety about sourcing product, thus inflating backlogs and setting the scene for a sharper than-expected short-term unwind, particularly for consumer electronics and segments facing demand destruction risk,” the bank’s analysts wrote in the Dec. 14 report.

Logistics costs will remain “significantly higher” and will be “persistent through 2022,” Morgan Stanley predicted. “Quarantine and travel restrictions are unlikely to be eased for key transcontinental routes in a coordinated fashion through 2022, with little new capacity until late 2023.”

For companies producing tech hardware, Morgan Stanley is cautious on those with elevated levels of backlog as well as limited visibility into when demand will return to normal. It says it prefers semiconductor firms exposed to autos and industrials.

Stocks most crucial to supply chains

Firms squeezed by bottlenecks

Such firms may be facing cost pressure, but they still hold pricing power by virtue of their industry position, according to Morgan Stanley.

These are the stocks that fall under the “bottleneck” category.

“In the face of disruptions and capacity constraints, there are limited options except to raise prices to compensate for higher input costs or to ration capacity through backlogs,” Morgan Stanley said, of such firms facing bottlenecks.



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