Since the mid-summer, major markets around the world have been experiencing a period of flux, with most of the indices witnessing a sell-off — some in the region of up to 20 per cent. Combined with this global decline in markets’ capitalisation levels, the price of oil has also seen a sharp decline. From trading at the $100 (Dh367) per barrel mark then, the price of oil is fluid, floating at the $80 level.
In terms of markets, investors are viewing developments in China with concern. As the world’s largest manufacturer and trader, China is experiencing a five-year low in growth levels, with the current quarter expected to reflect levels not seen since the first quarter of 2009. The reality, though, is that China’s economy is expected to grow by some 7 per cent year over year in the July-September period. After a sustained five-year stretch of continued growth, a slowdown is to be naturally expected. The question then is: Is this merely a pause for China or is there something more fundamental happening to the global economy?
The US continues to rebound — and there are three million more Americans back at work than there were last year. That means more homes being bought, more consumer goods, more demand for China’s goods and greater confidence. US companies too are sitting on larger cash balances than at any time in the past six years. Yes, uncertainty over Daesh (Islamic State of Iraq and the Levant) is a question — and so too is the fear that exists over Ebola and tensions in Ukraine and Russia’s relationship with the West. These concerns have added to market jitters. But let’s also bear in mind that major market indices in the West over the past two years have been on a strong growth trend. That is difficult to sustain and a correction was both needed and expected.
Oil production is soaring in the US as more shale comes on tap. But bear in mind that shale oil is costly to produce with the current benchmark at the top end of the effective limit. So what is the lesson? Simply this: Hang tight, ignore the doom sayers and all will rebound — later, if not sooner.
