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Guanxi
Ideas from across Macquarie and beyond …
Inside
Oil pg 2-4. Oil took its first leg up in Sep when it became clear there would be
more quantitative easing from the US Fed and as economic data continued to
improve around the world. That move seemed a positive thing for stocks. The
more recent leg up beginning 21 Feb is more ominous, as it is in response to the
problems in the Middle East. Three previous occasions can be compared with
the present: The oil crisis of 1980-81, the first Gulf War, and the most recent
spike, in 2008. None were equity friendly: the S&P fell 20% from Nov 1980 to
Jan 1982, 27% from May to Oct 1990, and 12% from Feb to Sep 2008.
Middle East, the big picture pg 4-6. The Middle East accounts for some
40% of the oil produced, and 65% of proven reserves. The Street will watch what
happens there for a few weeks before changing any numbers. But there is no
short-term resolution, in your scribe‘s view. Perhaps the most important signal
beyond the oil price itself is the Saudi stock market, down 16% YTD.
The big picture, frontier markets pg 7-9. Suddenly inflation has arrived at
Asia‘s station. Korea‘s core inflation rate was 3.1% YoY in Feb, vs. just 1.8%
throughout 2010. Import prices are running at 14% YoY. Macquarie oil
economist Jan Stuart‘s rule of thumb is that US$120/bbl is where there is
genuine demand destruction. Presumably countries that have lower GDP per
capita and a higher degree of energy intensive industries would see demand
destruction at lower levels. Where we are seeing this first is in Asia‘s frontier
markets. If oil averages US$120/bbl this year, Vietnam, Pakistan and
Bangladesh will have inflation in the high teens. That is not in forecasts, which
look for it to come down in 2H. Their stock markets have wiped out recent gains.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Guanxi
Ideas from across Macquarie and beyond …
Inside
Oil pg 2-4. Oil took its first leg up in Sep when it became clear there would be
more quantitative easing from the US Fed and as economic data continued to
improve around the world. That move seemed a positive thing for stocks. The
more recent leg up beginning 21 Feb is more ominous, as it is in response to the
problems in the Middle East. Three previous occasions can be compared with
the present: The oil crisis of 1980-81, the first Gulf War, and the most recent
spike, in 2008. None were equity friendly: the S&P fell 20% from Nov 1980 to
Jan 1982, 27% from May to Oct 1990, and 12% from Feb to Sep 2008.
Middle East, the big picture pg 4-6. The Middle East accounts for some
40% of the oil produced, and 65% of proven reserves. The Street will watch what
happens there for a few weeks before changing any numbers. But there is no
short-term resolution, in your scribe‘s view. Perhaps the most important signal
beyond the oil price itself is the Saudi stock market, down 16% YTD.
The big picture, frontier markets pg 7-9. Suddenly inflation has arrived at
Asia‘s station. Korea‘s core inflation rate was 3.1% YoY in Feb, vs. just 1.8%
throughout 2010. Import prices are running at 14% YoY. Macquarie oil
economist Jan Stuart‘s rule of thumb is that US$120/bbl is where there is
genuine demand destruction. Presumably countries that have lower GDP per
capita and a higher degree of energy intensive industries would see demand
destruction at lower levels. Where we are seeing this first is in Asia‘s frontier
markets. If oil averages US$120/bbl this year, Vietnam, Pakistan and
Bangladesh will have inflation in the high teens. That is not in forecasts, which
look for it to come down in 2H. Their stock markets have wiped out recent gains.
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