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MORGAN STANLEY SAYS THERE IS LIFE BEYOND AI AND HORMUZ IN MARKETS

Investors should look beyond artificial intelligence and the Strait of Hormuz for market opportunities, Morgan Stanley said, even as the brokerage said those two forces remain the biggest variables driving global assets this year.

"It is both a market of one and a market of many," Morgan Stanley said. Global macro forces are pulling stocks and bonds together, while individual stocks within the S&P 500 are moving with unusually low correlation to each other.

That, the brokerage said, is creating room for trades in real estate, securitized credit, currencies, rates, and equities.

"This is a very 'macro' year. The AI buildout and the Strait of Hormuz dominate global newsflow, pull at nearly every asset class, and help explain unusually high stock-bond correlations," Morgan Stanley wrote in a May 31 note.

But the brokerage said "there is life beyond this," pointing first to U.S. commercial real estate, which was a source of concern in 2023, has "quietly begun to improve," with U.S. origination volumes ending 2025 up 40%.

In the first quarter of 2026, transaction volumes rose 27% from a year earlier, prices gained about 5%, and distressed flows turned negative for the first time in 15 quarters, according to the brokerage.

It said it continues to see value in U.S. commercial mortgage-backed securities with 'BBB' credit ratings, the lowest investment-grade tier.

Elsewhere, the brokerage also said pessimism toward the UK may be overstated, citing Land Securities Group LAND.L CEO Mark Allen's comment that "occupancy is now up to a 20-year high and rents are growing at their fastest pace in nearly two decades."

Morgan Stanley said Hungary could be an economic "game changer" with the unlocking of EU funds, while Asia offers opportunities in Japan, India, and the Korean won.

(Akriti Shah)

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