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Oil's warning sign

The rising oil price is a warning to us to be wary of cyclical stocks such as miners and emerging markets.
Oil's warning sign
  • A high oil price has in the past been a warning of low returns on mining and emerging market equities. 
  • Investors are quicker to price in the good news of high oil prices (that they are a sign of stronger growth) than the bad – that lead depress economic activity. 

The oil price has risen to almost a three-year high, prompting the question: what is this telling us?

In theory, of course, the answer is: nothing. The efficient market hypothesis tells us that all information – especially about something as obvious as the price of oil – should be quickly embodied in the price of all assets. If so, then a high oil price has no investment implications.

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