NEW YORK CITY, New York: Morgan Stanley has downgraded global equities and shifted toward safer assets, citing rising uncertainty from the Middle East conflict and its impact on oil markets.

The Wall Street brokerage cut its rating on global equities to "equal weight" from "overweight", while raising U.S. Treasuries and cash to "overweight" from "equal weight."

"Uncertainty around magnitude and duration of oil supply disruption means outcomes for risk assets have become increasingly asymmetrical," Morgan Stanley strategists said in a note late last week.

Brent crude has surged 59 percent this month, marking its steepest monthly rise and exceeding gains seen during the 1990 Gulf War. Futures climbed above US$116 a barrel on March 30.

The brokerage warned that if oil prices remain in the $150-$180 per barrel range, global equity valuations could shrink by nearly 25 percent.

Morgan Stanley has also trimmed its equity exposure by downgrading U.S. and Japanese stocks to "equal weight" from "overweight".

"We turn equal weight on Japanese stocks given negative tail risks as we expect it to come under pressure from supply chains and global recessionary impacts in a scenario where the Strait (of Hormuz) remains closed for longer," the strategists said.

Despite the broader downgrade, the firm retained a preference for U.S. stocks over other regions, citing stronger earnings-per-share growth.

The shift contrasts with much of last year, when investors moved away from U.S. assets amid tariff-related uncertainty and rotated funds into European, Japanese, and emerging markets.

Since the Middle East conflict began last month, fund flows into U.S. equities and bonds have outpaced those into other regions, with investors "looking to U.S. assets as a more defensive market again," Morgan Stanley said.

In the event of an oil supply shock, U.S. Treasuries also offer better diversification, as the country is less dependent on energy imports than Europe, the strategists added.