Greater stability for the price of oil should help risk assets and emerging markets, and lessen the appeal of safe-haven investments, according to BlackRock.
According to BlackRock global chief investment strategist, Richard Turnill, an unexpected OPEC plan to cut production and a surprisingly large drop in US oil stockpiles will underpin prices for risk assets. Turnill said that the OPEC plan is seen as a strategic move away from the battle for market share by Saudi Arabia. There is scepticism over its implementation, but it reduced risks of a sharp fall in the price of oil and the price to reaching a long-term equilibrium around $60 a barrel, he commented. Turnill added: “Plunging oil prices were a major market and economic shock in 2015 and early 2016, causing broad market volatility while adding to the pain in emerging market and high yield assets. An effort to rebalance the oil market is important because it should help support energy companies, risk appetite and reflation trades.” Turnill observed that a trend to reflation would see investors shifting assets from bonds and low volatility stocks into emerging markets and more cyclical assets.