Investors in the Middle East are facing a key stress test due to the political crisis, leading to a rise in oil prices and the potential for long term high interest rates slowing down the trend of world stocks.
MSCI measured a rally in stocks all over the world, which rose to a peak level in mid-February, as the price of oil reached its two and a half year high in a time of intensifying violence in Arab countries and Libya. However, this past week, the MSCI index increased by 1.5%, which was a sigh of relief for investors as the focus of was on improving both economic and corporate fundamentals and the expected world growth of around 5% this year.
Data from Reuters indicate that investors have put in $2.5 billion of fresh money in cash into equity funds of the U.S. since March 2nd, although money allocated to emerging markets was pulled out. In the upcoming week, oil will be the key for all investors who would watch the planned protest of Saudi Arabia's, and the very important summit of European leaders on the decisions about Libya as well as the unfolding debt crisis.
Rolling correlations of the past 30 days of the world stock index and U.S. crude oil bounced to around 0.5 percent, such levels were seen last during early 2008. This shows that stock rates fall when there is rise in oil prices and this link is the strongest in the past three years. Not much new bad news from the widely known trouble spots, combined with positive macroeconomic information, could dominate the markets, but it could change quickly."
Oil prices as well as Volatility Index have also begun to move simultaneously in the past weeks. The stock markets of Saudi Arabia, dominated by domestic investors, descended to a 23-month low on Wednesday. Dubai and Kuwait shares also hit the 6-year low on Thursday. Investors' resilience is strengthening as they are confident that the world economy, backed by cheap and abundant cash, would put up a substantial recovery in this year.
The calculations of Reuters show that GDP growth of the world would reduce to half, with current projections to 2.2% in 2011 from current projections. Oil must reach a high of $190 in order to wipe out world growth, on the assumption that a broad price increase of 10% would trim the global growth by almost half a percent.
MSCI measured a rally in stocks all over the world, which rose to a peak level in mid-February, as the price of oil reached its two and a half year high in a time of intensifying violence in Arab countries and Libya. However, this past week, the MSCI index increased by 1.5%, which was a sigh of relief for investors as the focus of was on improving both economic and corporate fundamentals and the expected world growth of around 5% this year.
Data from Reuters indicate that investors have put in $2.5 billion of fresh money in cash into equity funds of the U.S. since March 2nd, although money allocated to emerging markets was pulled out. In the upcoming week, oil will be the key for all investors who would watch the planned protest of Saudi Arabia's, and the very important summit of European leaders on the decisions about Libya as well as the unfolding debt crisis.
Rolling correlations of the past 30 days of the world stock index and U.S. crude oil bounced to around 0.5 percent, such levels were seen last during early 2008. This shows that stock rates fall when there is rise in oil prices and this link is the strongest in the past three years. Not much new bad news from the widely known trouble spots, combined with positive macroeconomic information, could dominate the markets, but it could change quickly."
Oil prices as well as Volatility Index have also begun to move simultaneously in the past weeks. The stock markets of Saudi Arabia, dominated by domestic investors, descended to a 23-month low on Wednesday. Dubai and Kuwait shares also hit the 6-year low on Thursday. Investors' resilience is strengthening as they are confident that the world economy, backed by cheap and abundant cash, would put up a substantial recovery in this year.
The calculations of Reuters show that GDP growth of the world would reduce to half, with current projections to 2.2% in 2011 from current projections. Oil must reach a high of $190 in order to wipe out world growth, on the assumption that a broad price increase of 10% would trim the global growth by almost half a percent.
Source...