Oil

Oil: WTI (US$57.81, -3.7%) and Brent crude (US$61.85, -3%) continue to slump, after the United Arab Emirates (UAE) said that the OPEC will resist output cuts even if prices fall to as low as $40. OPEC CEO Abdullah el-Badri added that while the organisation does not provide a target price for oil, he believes that oil price has fallen below fundamental valuations. The OPEC head further urged the Gulf states to continue investing in exploration and production, underpinned by reliance by the US on Middle East oil for years to come. el-Badri disagreed with market hypotheses that OPEC’s decision to maintain output were aimed at disrupting the development of the US shale market, and reducing the political bargaining power of Russia and Iran. If weak oil prices persist, BlackRock sees potential for emerging Asian equity markets to gain momentum. The IMF estimates that every 10% drop in oil price potentially results in a 0.2% boost to global GDP. This is a boon for Asia’s largest economies, which are reliant on oil imports and consumer exports. China, India, South Korea and Taiwan account for 84% of the MSCI Emerging Markets Asia ETF (NYSE Arca: EEMA). At the same time, BlackRock sees low oil prices also fuelling momentum for Turkey’s stock market, of which BlackRock expressed it was “aggressively bullish” towards at the start of the year. In the current quarter, the Borsa Istanbul main index is the best performing main index in Europe, and third globally, behind the Shanghai Composite Index and the Venezuela Stock Market Index. BlackRock in Nov, increased Turkey’s weighting in its Emerging Europe Fund to 28% (+6ppt) on expectations that the outperformance could continue. Investors can gain access to Turkey via NYSE Arca listed iShares MSCI Turkey Fund ETF (NYSE Arca: TUR). Alternatively, investors may also express a view on oil directly via ETFs, such as the United States Oil Fund ETF (NYSE Arca: USO). With IATA expecting global airlines to break 2010’s profit record next year, Maybank-KE upgrades AirAsia to Buy from Hold with TP of RM 3.25, while it reiterates its Buy call on Singapore Airlines (TP $11.63), and Sell call on AirAsiaX (TP RM 0.69).