Morgan Stanley said most acute supply chain disruptions are already subsiding and will be more fully resolved within the first half of 2022.
This is the base case outlined by the investment bank 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 have formed and industrial production has been unable to meet a surge in demand after the pandemic. Energy bottlenecks in China and Europe as well as Covid-related lockdowns have contributed to the enormous bottleneck in the supply chains.
Supply chains remain fragile, especially as the world is still assessing the risk of new Omicron strains, Morgan Stanley said.
“However, orders have increased due to fear of sourcing products, which is puffing up the backlog and creating the conditions for shorter-term fulfillment stronger than expected, especially for consumer electronics and segments facing the risk of demand destruction,” wrote the Bank analysts in December. 14 reports.
Logistics costs will remain “significantly higher” and “will remain in place until 2022”, predicted Morgan Stanley. “It is unlikely that quarantine and travel restrictions on key transcontinental routes will be relaxed in a coordinated manner by 2022, with little new capacity by the end of 2023.”
For companies that make technical hardware, Morgan Stanley is wary of companies with high backlogs and limited visibility into when demand will normalize again. It says it prefers semiconductor companies that invest in automobiles and industrials.
Stocks matter most to supply chains
The investment firm identified companies it describes as “regional champions” “in recognition of their importance to supply chains and the role policymakers could play … to strengthen their position against competitive pressures from other spheres of influence.”
“These companies did indeed excel in the 2020-21 global supply chain challenges, but by and large, they have also shown stronger profitability trends and well outperformed the MSCI ACWI global equity benchmark,” the report said. The MSCI ACWI Index consists of stocks in the MSCI World and emerging market indices.
These are the top stocks Morgan Stanley says are “key” to its supply chains.
- Technical hardware: Apple, HP, Cisco, Lenovo, Fujitsu, Hitachi
- Semiconductors: Samsung Electronics, Intel, Infineon Technologies, NVIDIA
- Cars and components: Volkswagen, Ford Motor, Daimler, General Motors, BMW, Tata Motors, Renault, Hyundai Motor, Continental
- Software: Microsoft, IBM, Dell, SAP
- Insurance: Berkshire Hathaway
- Consumers: Sony, Panasonic, LG Electronics
- Retail: Amazon
- Capital goods: Volvo AB, Siemens
Companies squeezed by bottlenecks
Morgan Stanley also listed the companies allegedly hardest hit by supply chain bottlenecks.
“Industries that fall into this category are the ones that transmit supply chain pressures the most, in part because companies in this cohort continue to rely on manpower despite increasing automation or capital investment,” the company said.
Coupled with other factors such as reliance on markets subject to trade or other political frictions, this makes “such companies vulnerable to geopolitical and labor market dynamics, but also critical to global supply chains,” it said. Some examples are container shipping and semiconductor companies.
Such firms may be under cost pressures, but Morgan Stanley says they still have pricing power because of their position in the industry.
These are the stocks that fall under the bottleneck category.
- Semiconductors: Infineon, ST Microelectronics, NXP Semiconductor, Microchip Technology, Texas Instruments, Analog Device, ON Semiconductor, Globalfoundries, Nuvoton Technology, Nanya Technology
- Technical hardware: BYD Electronics, Wingtech Technology, Unimicron, Kinsus Interconnect Tech, Nan Ya PCB
- Network equipment: Lumentum, II-VI, Corning, CommScope
“With disruptions and capacity constraints, there are limited options other than increasing prices to offset higher input costs or rationing capacity through backlogs,” said Morgan Stanley of those companies facing constraints.
