As global markets remain volatile due to a slump in oil prices, and with warnings that low prices might be here to stay, plus the downgrading of global growth forecasts, a leading global analyst from one of the world’s largest independent financial advisory organisations is warning investors to avoid “knee-jerk reactions.”
Tom Elliott, International Investment Strategist at deVere Group, which has more than $10 billion under its advice and management, is speaking out after oil prices have been below $100 in recent weeks and as share values on many global indices, including the FTSE 100, have been falling recently.
Mr Elliott comments: “The current weak oil prices are the result of a perfect storm created by stronger supply and weaker demand.
“The stronger supply is largely due to shale oil production coming on-stream in the U.S. and Libya, and Iraq coming back on-stream in a big way. This means significant month-on month increases in production from OPEC members, including Saudi Arabia.
“This is combined with the relatively weak growth in demand from the eurozone because of its weak economy, the fact that China’s growth rate is slowing, and because Americans are using oil more efficiently – which is a side effect of high oil prices over the last decade.”
He continues: “This poses big questions for oil-export dependent countries, whose break-even prices – the price they need oil to be in order to finance state spending – tend to be between USD 80 and USD 100.
“On the bright side, lower energy costs will boost profits of energy intensive companies worldwide, and will lower import bills for energy-importing countries.”
Mr Elliott goes on to say that investors should avoid over-reacting to the current market situation.
“I would urge investors to avoid knee-jerk reactions to the oil price slump and gloomy global growth forecast that is creating the current stock market volatility. Volatility is normal and what has been abnormal is the recent period of low volatility.
“Investors are likely to profit by sitting still and not selling and having to buy back at higher prices.
“What is happening now in the markets is why a multi-asset approach to investing is undoubtedly the best solution to long-term investing.”