Monday, September 28, 2020

Coronation says oil price projection of US $ 100 per barrel “realistic”

The giant fund management company, Coronation Fund Managers, added its voice Friday to international concerns that geo-political conflicts and imbalances in energy demand and supply are threatening to drive oil prices to US $ 100 per barrel.

Ken Lewis, Coronation Portfolio Manager based in United Kingdom, said the emerging markets of China, India and Brazil are making energy demand and supply matrix tricky as there are not enough explorations done around the world.

“There isn’t much done in terms of exploration and as long as there is China and India, the US $ 100 (mark) is realistic because of the supply and demand imbalances,” he said, adding that political instability, especially in the producing countries, is adding an upward spike in prices.

However, outside conflicts, he said they were expecting crude oil prices to slow-down to about US $ 68 per barrel.

The ongoing political crisis in the Middle East involving Iraq, Lebanon and the political stand-off in Iran have greatly affected crude oil prices in the international market. The situation is made worse by rising fuel consumption in China, India and Brazil which have greatly affected developing countries such as Botswana.

Reeling under international pressure, fuel pump prices were increased by 42 thebe last week leaving public transport operators clamouring for an increase in fares to compensate for the eroded profit margin due to repeated increases.

Lewis, who was here for global economic presentation, also pointed out that his company will reduce its exposure on the equities due to weaker corporate profits but said Africa stands to benefit from high commodity prices.

He said the commodity prices were driven by growth in Asia, especially China and India, and, to a certain extent by Brazil. Africa is the net exporter of minerals including copper which is in great demand as China and India are working on electrifying their rural areas and developing their computer manufacturing industries.

The company which offer a myriad of investment services ÔÇô including top notch ones such as hedge funds ÔÇö is one of the top fund managers in South Africa with operations in Ireland and London

“We manage all asset classes and, we have consistently outperformed our peers and benchmarks,” he said but warned that they “would be reducing their exposure to equities going forward”.

However, he stated that he is concerned about the slow-down in the USA homeownership market which is feeling the pinch from the interest rate adjustments aimed at bolstering the economy.

“Homeownership is slowing down in the USA but we do not expect it to go into a crash,” he said.

The USA is following on the foot-steps of its biggest trading partner, the Euro zone, which has increased interest rates repeatedly this year. This year alone, Euro zone has increase rates three times and there are prospects of doing that in future which he said is likely to impact negatively on company profits.

“Corporate profits are still strong in the USA but slightly going down. And the European Central Bank is going to increase rates leading flattening of yield curve,” he added.

“Growth in stocks is bound to decrease and I think we are going to see a situation where bond will in the lead,” he said, adding that his company is more interested in the long term performance of companies rather than short term.

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Sunday Standard September 27 – 3 October

Digital copy of Sunday Standard issue of September 27 - 3 October, 2020.