Global oil prices are not likely to go down significantly, even if the Arab crisis quietens down, said Royal Bank of Scotland's (RBS) Head of Regional Strategy (Asian Equities), Mr Emil Wolter on Friday.
This is because the global, and especially the US recovery, is expected to create higher demand side pressures and keep crude oil prices in the higher levels.
“Though Libya produces only two per cent of the global oil supply, prices have been going up on the expectation that something worse could happen. Even if the crisis doesn't spread to other countries in the region, oil prices will not come down by much because of increased demand largely from the US and other developed nations,” he said.
He added, “If oil reaches $120 a barrel and stays there for a while, it could take off 1.5 per cent from the regional GDP growth of Asia. In this region, only Malaysia is a net oil exporter while most others are adversely affected by oil prices.”
INVESTMENT SHIFT
RBS also sees FIIs moving to North and Northeast Asia from South and Southeast Asia due to rising food prices. The cost of capital will go up, thanks to rising bond yields, it said.
“Philippines, India and Indonesia are prone to capital flight and are suffering from inflation. We're seeing a period of consolidation and think that money that can be made here can also be made elsewhere at much less risk. However, we're bullish on China, Singapore and Malaysia,” said Mr Wolter.
He added that the Indian economy would need to slow down a bit as it is overheating on rising food prices. Moreover, the high targets for revenue, fiscal deficit and growth set by the Budget could be difficult to achieve.
Mr Wolter further said that RBS is bullish on energy, IT, telecom and utility company stocks and bearish on industrials and fast moving consumer goods.