Falling oil prices should be viewed as a positive; investors are over-reacting says Chairman
says investors shouldn’t be overly concerned with fluctuations in the global markets as a result of the drop in oil prices. He says investors are overreacting.
The Chairman said he can’t understand why investors are running for safety, “A drop in oil prices isn’t necessarily a bad thing, in fact, it’s very positive for the majority of sectors like airlines and shipping, transportation and manufacturing.”
“The benefits of lower oil prices outweigh the negatives,” he said. “A drop in oil prices benefits many businesses. Sure, energy companies lose out, but cheaper oil is generally good for the economy and the overall stock market. Companies that use oil as an input experience a reduction in their cost of production. This means profit margins go up, and this can be passed on to the consumer.”
Al Habtoor provided an example in India where car sales jumped 10 per cent in November on the back of lower oil, according to data released by industry body Society of Indian Automobile Manufacturers (SIAM). “Car sales bounced into positive territory in India following two months of decline. This sends a strong message,” he said.
Al Habtoor added, “If you look at the US economy, the world’s largest economy and a significant energy consumer, it would benefit from a drop in oil prices. Consumers gain because gas costs less and results in higher real income which could result in increased spending. Businesses benefit from lower costs of production and higher profits, and this could lead to increased output, which means more activity in the economy.”
Investors took fright after Morgan Stanley revised its oil forecast lower, saying prices could drop as low as $43 a barrel next year. Crude oil has already decreased from over $100 a barrel to around $65 a barrel.
“I believe the analysts are being more academic than practical in this instance. This is just an assessment and it has led the bears to come out,” Al Habtoor said. “What people have to remember is that the stock market is not an indicator of the overall economy.”
Commenting on the UAE market, the Chairman said that country has proved it can withstand global market turmoil following its recovery from the global crisis in 2008. “The UAE has a diversified economy that is not wholly reliant on oil,” he said. “Plus the UAE government put measures in place to give itself a buffer, and it is in a better position than ever to cope with external shocks.”