UBS Global Cuts India, Euro Zone Stocks on High Oil Sensitivity

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(Bloomberg) — UBS Global Wealth Management downgraded Indian and euro zone equities, warning their sensitivity to elevated oil prices makes them more vulnerable if the Middle East conflict drags on.

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“It might be very difficult to reach a final conclusion” on Iran war in a very short period of time, Suresh Tantia, a strategist for Asian equities at the wealth manager said on Bloomberg TV. He said the money manager downgraded euro zone equities and Indian stocks to neutral this morning.

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Stock gauges in energy import-dependent markets such as India and Europe have dropped more than 9% since the Iran war started, more than double the decline in the US. This reflects concerns that sustained energy inflation could curb growth, delay interest-rate cuts and raise fiscal pressures. The shift is reinforcing a rotation toward more defensive and energy-resilient markets as fund managers reassess their exposures.

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UBS Global’s team upgraded Switzerland’s equity market and the European healthcare sector to “attractive,” citing their defensive characteristics. It remained broadly positive on equities.

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But it said that persistently high energy costs could undermine the manufacturing recovery in Europe and likely to add to India’s fiscal pressures. 

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Meanwhile, Tantia said that Chinese equities are likely to be more resilient, noting that the country is expected to maintain oil flows through the Strait of Hormuz, while benefiting from low inflation and significant under-performance relative to other Asian markets.

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The problems are more acute for India, which imports roughly 90% of its crude oil and nearly 50% of its liquefied petroleum gas. About half of the crude requirement and over three-quarters of the LPG transits the Strait, which Iran has effectively shut.

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The Iran war’s fallout is compounding India’s structural risks, including high valuations, AI disruption risks in the absence of major chipmakers, and currency weakness. 

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Indian stocks have lagged global peers and the rupee has weakened toward record lows amid foreign selling. Bhanu Baweja, chief strategist at UBS Group, told Bloomberg News on Monday that the probability of global funds buying the dip in the near term is very low due to elevated valuations.

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“You are effectively paying a high multiple for mid-teen earnings growth — almost like the US, but without the AI tailwind,” he added.

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