Bulletin
Investor Alert

New York Markets Close in:

Emerging Markets Report Archives | Email alerts

Nov. 27, 2018, 3:40 p.m. EST

Plunging oil prices create winners and losers in emerging markets

Oil price drop to benefit importers like Turkey, South Africa, India

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    U.S. Dollar Index (DXY) (DXY)

or Cancel Already have a watchlist? Log In

By Anneken Tappe, MarketWatch


AFP/Getty Images
Rising fuel prices sparked protests in India earlier this year.

For some it’s a blessing, for others it spells trouble ahead, but one way or another, the oil price drop will have an effect on emerging markets.

After hitting a nearly four-year high above $86 a barrel in early October, Brent crude, , dropped like a stone, trading temporarily below $60 per barrel, as worries over growing output and global demand took their toll. Brent, the global benchmark, and West Texas Intermediate crude , its U.S. counterpart are both down more than 30% from their early-October peaks. Crude rebounded Monday, but was back down, in part thanks to a stronger U.S. dollar /zigman2/quotes/210598269/delayed DXY -0.34% , on Tuesday.

Don’t miss: 6 key reasons the ‘bottom is falling out’ of oil prices on Black Friday

And: Emerging market roundup: Dramatic oil drop weighs on Russia

Turkey, for example, is a net oil importer (and is also still buying oil from Iran), and a cheaper price of the black gold will help Ankara’s balance of payments. Similarly, the likes of South Africa and India, also net importers, but with smaller current account deficits, they will likely see the cheaper oil price boost their terms of trade and support their GDP growth.

In hard numbers, every $10 per barrel drop in the oil price, boosts the income of oil importing emerging economies by roughly 0.5%-0.7% of GDP, according to Capital Economics. This is particularly exciting as investors didn’t have the best economic outlook for the above three countries just a few weeks back, due in part to rising oil prices.

Check out: Why falling oil prices are now a net drag on the U.S. economy

Turkey tumbled into a currency crisis over the summer, hampered in part by a dropping lira /zigman2/quotes/210561895/realtime/sampled USDTRY -0.1034% , and worries over its large dollar-denominated debt burden. Since the start of the year, the lira has dropped some 30% versus the dollar and the iShares MSCI Turkey ETF /zigman2/quotes/205815187/composite TUR +2.27%  is down more than 40%. So some good news is welcome.

And just like in Turkey, South Africa’s rand /zigman2/quotes/210561940/realtime/sampled USDZAR -0.2211% , India’s rupee /zigman2/quotes/210562010/realtime/sampled USDINR -0.0029%  and local ETFs /zigman2/quotes/200534867/composite EZA +1.85%   /zigman2/quotes/203081921/composite INDA +1.04%  haven’t fared too well this year.


Capital Economics

On the other end of the spectrum are oil exporters, like Russia and the Gulf states, for which the $10 drop per barrel translates into a decline worth something in the range of 1.5%-5% of GDP, with the Gulf states hit harder, Capital Economics said. While that’s not great, these oil producers run large current account surpluses, and the oil price would have to fall a whole lot more to change that.

Read: Here’s why the stock market’s ‘Red October’ raises the odds of a global recession

Russia is also struggling with U.S. sanctions, which have led to weakness in the ruble /zigman2/quotes/210561862/realtime/sampled USDRUB -0.0131%  and in the stock market . The iShares MSCI Russia ETF /zigman2/quotes/206979425/composite ERUS -1.60%  is down 2.5% in the year-to-date.

/zigman2/quotes/210598269/delayed
US : U.S.: ICE Futures U.S.
96.33
-0.33 -0.34%
Volume: 0.00
July 13, 2020 1:55p
loading...
/zigman2/quotes/210561895/realtime/sampled
US : Tullett Prebon
6.8611
-0.0071 -0.1034%
Volume: 0.0000
July 13, 2020 2:05p
loading...
/zigman2/quotes/205815187/composite
US : U.S.: Nasdaq
$ 23.45
+0.52 +2.27%
Volume: 63,333
July 13, 2020 2:01p
loading...
/zigman2/quotes/210561940/realtime/sampled
US : Tullett Prebon
16.7408
-0.0371 -0.2211%
Volume: 0.0000
July 13, 2020 2:05p
loading...
/zigman2/quotes/210562010/realtime/sampled
US : Tullett Prebon
75.1566
-0.0022 -0.0029%
Volume: 0.0000
July 13, 2020 11:12a
loading...
/zigman2/quotes/200534867/composite
US : U.S.: NYSE Arca
$ 38.48
+0.70 +1.85%
Volume: 364,888
July 13, 2020 2:05p
loading...
/zigman2/quotes/203081921/composite
US : U.S.: Cboe BZX
$ 31.10
+0.32 +1.04%
Volume: 2.16M
July 13, 2020 2:05p
loading...
/zigman2/quotes/210561862/realtime/sampled
US : Tullett Prebon
70.7232
-0.0093 -0.0131%
Volume: 0.0000
July 13, 2020 2:05p
loading...
/zigman2/quotes/206979425/composite
US : U.S.: NYSE Arca
$ 34.18
-0.56 -1.60%
Volume: 54,681
July 13, 2020 2:05p
loading...

Anneken Tappe is a markets reporter for MarketWatch. She is based in New York.

This Story has 0 Comments
Be the first to comment
More News In
Markets

Story Conversation

Commenting FAQs »

Partner Center

World News from MarketWatch

Link to MarketWatch's Slice.