By Andy Sambidge
Leading Dubai businessman highlights upside to fall in oil prices; says investors shouldn't be 'overly concerned'
Khalaf Ahmad Al Habtoor, one of the UAE's leading businessmen, said on Wednesday that stock market investors were "overreacting" to the recent drop in oil prices.
The chairman of Dubai-based conglomerate Al Habtoor Group said investors "shouldn't be overly concerned with fluctuations in the global markets" as a result of the drop in oil prices.
He added that he can't understand why investors are running for safety.
"A drop in oil prices isn't necessarily a bad thing, in fact, it's very positive for the majority of sector like airlines and shipping, transportation and manufacturing," he said in a statement.
"The benefits of lower oil prices outweigh the negatives," he said. "A drop in oil prices benefits many businesses. Sure, energy companies lose out, but cheaper oil is generally good for the economy and the overall stock market.
"Companies that use oil as an input experience a reduction in their cost of production. This means profit margins go up, and this can be passed on to the consumer."
His comments come on the same day that Brent crude oil fell more than a dollar to a new five-year low as producers forecast lower demand for their oil next year.
In a monthly report, the Organisation of the Petroleum Exporting Countries (OPEC) forecast demand for the group's oil will drop to 28.92 million barrels per day (bpd) in 2015, down 280,000 bpd from its previous expectation.
Al Habtoor added: "If you look at the US economy, the world's largest economy and a significant energy consumer, it would benefit from a drop in oil prices.
"Consumers gain because gas costs less and results in higher real income which could result in increased spending. Businesses benefit from lower costs of production and higher profits, and this could lead to increased output, which means more activity in the economy."
Investors took fright after Morgan Stanley revised its oil forecast lower, saying prices could drop as low as $43 a barrel next year.
"I believe the analysts are being more academic than practical in this instance. This is just an assessment and it has led the bears to come out," Al Habtoor said. "What people have to remember is that the stock market is not an indicator of the overall economy."
Commenting on the UAE market, he said that country has proved it can withstand global market turmoil following its recovery from the global crisis in 2008.
"The UAE has a diversified economy that is not wholly reliant on oil," he said. "Plus the UAE government put measures in place to give itself a buffer, and it is in a better position than ever to cope with external shocks."
What his Excellency Mr.Khalaf Ahmad Al Habtoor has mentioned is the reality & truth what exactly is happening now.Investors are overreacting to the slump in oil prices despite the fact that the fundamentals of most of the companies whose shares are being traded are really strong and the fluctuations in oil prices have nothing to do with the share prices. People get panic for no genuine reasons and they tend to forget the performance of the comapanies. I also reiterate what Mr.Khalaf has rightly said ""The UAE has a diversified economy that is not wholly reliant on oil," he said. "Plus the UAE government put measures in place to give itself a buffer, and it is in a better position than ever to cope with external shocks."
@GKV....Mr Habtoor only gives half the story. Share price has EVERYTHING to do with businesses that are run on 'leveraged' loans set against future income and ability to pay. There are clauses in loan covenants that if a share price drops below a certain price then the loan or parts thereof become immediately repayable. There are very few local & international companies that do not have leveraged debt.
He says its good for the USA...it is in fact distastorous for the USA because it is impacting on the Shale Oil Industry that requires Oil prices to be at $76+ to turn a profit. I should also add that these companies are highly leveraged by the big banks and have been the biggest 'Employers' in the USA in the public sector. Shale Oil companies account for 30% of all USA Junk Bonds and the Banks are holding that paper.
Regarding UAE...GDP will be hit by 8-9% if Oil prices stay lower for longer (Source: IMF). Dubai/UAE is not diversified enough yet to cope with this long term...
His Excellency Khalaf Al Habtoor is 100% right. Being a seasoned investor/enterprener, he know the undercurrent. The people are now panicking and selling out of despair. Also, they may be prompted due to margin calls or over leverage... The value of shares now do not reflect its underlying strength. This economy is firing on six cyllinders and business climate will get better once the oil prices find a stable floor... Current panic is the result of uneducated investors like a baby throwing his toys in all directions without understanding proper usage.. UAE economy is not what it was during 1999 or 2005 or 2008 when there was sharp corrections... Those who sold in panic will repent...
Dear Mr. Habtoor,
The market will and always will love a panic/over reaction. Its a good thing, because this over reaction churns out great opportunities time and time again.
The way the DFM has been selling off is almost ridiculous, but it has always had a reputation for being overly emotional.
I have doubled down on Air Arabia and will probably add on Emaar.
@SKP...your comments are too generalised and 'Rah'Rah' like to be taken at face value. Mr Habtoor was the one stating...'The party is just beginning'...in 2008. That is a direct quote from his lips. It was propaganda talk as now. You say he is a seasoned investor...and maybe so...but that does not mean he has the correct handle on this market.
The culture of Dubai regarding money/investment is...'right here, right now, gimme, gimme, gimme'. That is not a real investment culture of old were people used to ride out volatility and remain in stock investments for periods of 5,10 & 20yrs. That is why we are seeing wild swings to very important economic news.
People are leveraged through greed and have to get out of their investments/Bets. Stockmarkets are now nothing but Casino's. People do not invest these days for the betterment of the companies and long term income/growth. They BET on who will give them money the fastest.
DFM companies are NOT as strong and you glibly note
It's pretty basic really. If you have shares in a company exposed to bad news, you would get out as quickly as possible; you do not want to be the imbecile holding the bucket with his pants down. Once the storm is over and shares have bottomed out, you go back in, if that's what you want. The day after this article was published, the stock market dropped an additional 7% and rest assured next week will see an additional dramatic drop. Now tell me, is it wise to have stock around and gotten mauled? Sorry, but when you're wrong you are wrong.
No investors are acting entirely rationally. Oil prices are vital to the local economy and look what happened after prices fell sharply in 2008. The whole economy plunged into a deep recession in 2009 and shares fell for six years.
Sam, your description reflects the approach of a day trader or a short term investor. Was Emaar exposed to bad news? It has just announced a historical dividend and has a pipeline of projects. So why did the shares fall? Its because too many UAE investors look at the stock market with a casino approach instead of as a long term investor. The UAE market has recently been upgraded from Frontier market to Emerging market, and investors certainly need to grow up and take a longer term view based on fundamentals relating to the economy and to individual companies. Mr. Habtoor was quite right in highlighting that investor behaviour disregarded the strong fundamentals of UAE economy and listed companies and were focussed on technicals alone.