AfricaPress-Tanzania: THE US futures oil price dipping to negative level might positively or negatively affect the trading of Dar es Salaam Stock Exchange (DSE), since it’s signaling slow global growth.
The prices for US futures crude oil prices last week dropped to historical lowest of around negative 4.0 US dollars where suppliers paid buyers to enable free storage space.
Orbit Securities’ Head of Research and Analytics, Imani Muhingo, said oil price dipping could have both but most likely positive.
“It would be negative if the drop in price of oil is too severe and burns down the whole American financial system thus worsening the ongoing [Covid-19] crisis,” Mr Muhingo told `Daily News` yesterday.
He added: “Hoping it will not get there, the drop in oil price is always positive as it reduces pressure from the shilling.”
Oil makes up more than 20 per cent of the country’s imports, thus a drop in price favors the balance of payment and thus lowers exchange rate risk.
“This is critical factor for foreign investors who contribute more than 85 per cent of market activities on DSE.
“With the ongoing corona crisis, a drop in oil prices makes no difference to DSE as foreign investors are already missing on the scene,” the head of research and analytics said.
In the last three weeks foreign participation in DSE has been less than 1.0 per cent as investors focus in safe haven assets and way cheaper stocks in other flexible markets.
An Investment banker cum economist, Dr Hildebrand Shayo told ‘africa-press’ that over supply was the reason for price dipping and stock investors may translated the trend a sign of slow global growth.
“Investors might be concerned that dipping prices are a sign of falling demand due to slowing global growth, hence investors in importing nations might cut back on capital outlays,” Dr Shayo said.
Other analysts said is a commonly held belief that high oil prices directly and negatively impact the US economy and the stock market. Tanzania Securities Senior Investment Analyst Ombeni Uhuru said studies suggest that oil prices and stock prices actually show little correlation over time.
“We don’t expect that to impact our market, remember oil is traded in contracts such as future contracts so negative price doesn’t mean you can get oil for free,” Mr Uhuru said yesterday. Studies suggest that oil prices and stock prices actually show little correlation over time.
“Conventional wisdom holds that an increase in oil prices will raise input costs for most businesses and force consumers to spend more money on gasoline, thereby reducing the corporate earnings of other businesses.
The opposite should be true when oil prices fall,” Mr Uhuru said.
It is popular to correlate changes in major factor prices, such as oil, and the performance of major stock market.
