- 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.