Strategists at Morgan Stanley have warned that the combination of a hawkish Federal Reserve and elevated oil prices is intensifying pressure on equity markets across Asia and other emerging regions, increasing the likelihood of another market pullback in the coming weeks.

In a research note, a team led by Jonathan Garner stated that current market levels are approaching their base-case targets. "We would not be surprised to see a third correction this year over the coming weeks," they wrote. The strategists also reiterated their underweight recommendation on Australian equities.

By contrast, the team anticipates more favorable earnings prospects and stronger resilience in Japan, South Korea, and Taiwan markets. They expect these regions to hold up better relative to other Asian markets during any downturn.

The note also highlighted that the US economic research team now projects two additional rate hikes of 25 basis points each in December and March, which would push the terminal federal funds rate to a range of 4.25%-4.5% by the first quarter of 2027. Furthermore, the US dollar trade-weighted index has climbed back above the 100 level for the first time since late July, which the strategists described as "clearly negative" for most Asian emerging markets in terms of financial conditions and currency exchange effects.