martes, 2 de diciembre de 2014

martes, diciembre 02, 2014
Oil drop is big boon for global stock markets, if it lasts

Morgan Stanley said the over-supply in the global crude market is “vastly overstated”, and likely to reverse soon.

By Ambrose Evans-Pritchard

3:12PM GMT 28 Nov 2014

motorist filling a car with petrol
Falling oil prices could be a big fillip for global equities (provided the economy avoids recession Photo: PA
 
 
Tumbling oil prices are a bonanza for global stock markets, provided the chief cause is a surge in crude supply rather than a collapse in economic demand. 
 
HSCB says the index of world equities rose 25pc on average over the twelve months following a 30pc drop in oil prices, comparable to the latest slide. Equities rose 19pc in real terms.
 
Data stretching back to 1876 is less emphatic but broadly tells the same tale. The S&P 500 index of Wall Street stocks rose by 11pc on average. The equity rally of 1901 was a corker.
 
Yet there were big exceptions. Stock markets continued to fall by 23pc in 1930 after the oil price crash. Much the same happened after the dotcom bust in 2001.
 
On both occasions the forces of global recession overwhelmed the stimulus or “tax cut” effect for consumers and non-oil companies of lower energy costs.

Roughly one third of the current oil slump is a shortfall in expected demand, caused by China’s industrial slowdown and Europe’s austerity trap.
 
The other two thirds are the result of a sudden supply glut, which Saudi Arabia and the Gulf states have so far chosen not to offset by cutting output.
 
This episode looks relatively benign. Nick Kounis from ABN Amro says it will add $550bn of stimulus to world markets. "That is fantastic news for the global economy," he said.

But it comes at a time when stocks are already high if measured by indicators of underlying value. The Schiller 10-year price earnings ratio is at nose-bleed levels above 27. Tobin’s Q, a gauge based on replacement costs, is stretched to near historic highs.





Andrew Lapthorne from Societe Generale says the MSCI world index of stocks has risen 38pc over the last three years but reported profits have risen just 3pc.
 
“Valuations, as measured by median price to cash flow ratios, are near historical highs. As US QE has come to an end, depriving the world of $1 trillion printed dollars a year, there are plenty of reasons to be nervous,” he said.
 
Past patterns may not prove a useful guide this time. Zero rates and QE have distorted all the normal signals. So has the emergence of China as the swing force in global commodity demand.




Nor is it certain that this fall in oil prices will endure. Morgan Stanley said the over-supply in the market is “vastly overstated”.
 
Much of the immediate glut is due to a supply surge of 800,000 barrels a day in Libya after export terminals were reopened over the early summer following a truce by tribal militias. This truce is already unravelling. Output has dropped by 400,000 barrels a day since September.
 
“Libya is getting worse by the day,” said Alastair Newton, head of political risk at Nomura.

“Iraq is producing at the top of its band, and Russia’s output always goes down in the winter for weather reasons. The 2m barrel surplus could disappear in no time.”

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