The Hindu Business Line : Asia pins hope on oil downturn

Asian markets, which have fallen 23 per cent till date on an average, will be hoping for crude oil to fall further ( declined by $24 from its July 11 peak) in the week ahead so that overseas investors may again buy stocks.

MSCI’s Asian index closed 3 per cent up as concerns over financial companies eased and oil tumbled.

Barring Vietnam and Bangladesh, all other major indexes of the region gained in the past week.

High prices and slower economic growth may have driven oil demand in the US lower, experts thought.

But is this going to continue? “With oil prices above $80 for nearly a year and income growth weakening, demand elasticity has begun to show signs of life,” Mr. Edward Morse, Chief Energy Economist, Lehman Brothers wrote in a report.

He expects the Rest-of-world oil demand in the Middle East, South America and Africa to remain robust but anticipates a moderation in demand from China and India.

If that happens, gloomy fund managers who have off-late lost interest in emerging markets may come back.

A Merrill Lynch survey released earlier this week showed that the percentage of 191 managers overweight in what they perceive as world’s rapidly growing economies, was down to 30 per cent from 49 per cent in May.

Signs of a reversal are already beginning to appear. Helped by the first week of flows into Asia ex-Japan Funds since mid-May, emerging markets equity funds snapped their six week losing streak despite fresh outflows from Latin America and EMEA Equity Funds, EPFR Global said on Friday. This has also been the strongest week for the diversified Global Emerging Markets Funds in over seven months

Asian stocks have slid to 11.7 times 12-month forward earnings from 17 times last year and that may be a reason why most of them appear inexpensive.

What may prove to be a spoilsport is a sharp downgrade in consensus earnings forecasts for 2009.

Overseas investors were doubtful about the prospects for companies next year and did not exhibit the ‘bullishness’ evident from analyst estimates, the Merrill Lynch survey indicated.

Asian markets will track the US market very closely next week.

US GDP

One hundred and eighteen companies listed on the S&P 500 will report earnings while data relating to June jobs (unemployment rate, non-farm payrolls etc.) and advance reading on second-quarter GDP growth figures, will also come out.

The unemployment rate in July is expected to have increased to 5.6 per cent from 5.5 per cent, data from Thomson Reuters IFR Markets says.

Asian markets, in the recent past, have been obsessed with the ‘jobs number’ but a lot more consideration is expected to be given to the GDP number (expected at 2.4 per cent) as the whole world decides on whether US is in a recession or not.

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