According to analysts of the largest bank Morgan Stanley Wealth Management, the markets underestimate the risks associated with rising oil prices. Investors are careless over this fact, although they should purchase low-cost energy stocks to hedge their portfolios so as not to lose.
At the beginning of this week, the situation on the stock markets developed favorably, which is why investors have lost their vigilance, bank experts say. On Monday, April 29, the S&P 500 index updated its record high. The main catalyst for its growth were US data. By the end of March 2019, consumer spending in America rose substantially, and the base rate of inflation, which the Fed carefully monitors, fell to an annual low. This can affect the decision of the regulator about the interest rate, analysts believe. The positive dynamics of the S&P 500 index suggests that investors are satisfied with oil prices, which is not very good, Morgan Stanley believes.
Experts advise market participants not to rest on their laurels, noting that the current rise in oil prices could be a problem for the global economy. If the cost of oil remains at the current level until the end of this year, the consumer price index may exceed 3%, creating a problem for the Fed. At the same time, the purchasing power of the population will significantly decrease, putting pressure on corporate profits and slowing economic growth in China and in emerging markets, Morgan Stanley believes.
Recall that the prices of Brent and WTI crude oil have recently reached their highest level in the last six months. On Tuesday, April 30, Brent crude rose by 1.10% to $ 72.74 per barrel. According to experts, the price of black gold will remain high or continue to grow, if OPEC and its allies extend the term of the agreement on the restriction of raw materials supply. It is possible that a decision will be taken at the next meeting in June of this year.
In the current situation, bank analysts recommend buying cheap oil stocks to hedge their portfolio, especially if so-called "growth stocks" prevail. These include papers purchased for the cyclical recovery of the economy. This will help lower the risks in the future, according to Morgan Stanley.
The material has been provided by InstaForex Company - www.instaforex.com