Falling oil prices 'have impact on capital flows'

27/02/2015 05:51 AST

Falling oil prices have changed market fundamentals impacting the financial sector and investment capital flows, a leading expert has said.

According to Ashmore Group's GCC regional director John Sfakianakis, for most regional economies, oil prices remain an essential component of the revenue structure and are an essential lifeline for those who rely on oil production revenue.

Mr Sfakianakis said this during the fourth GCC Financial Forum held in Bahrain.

The forum was organised by Euromoney Conferences and co-hosted by the Economic Development Board.

'When oil prices go down, oil producing countries are less well-off and oil importing countries are better-off, as this is the natural cycle of things,' he said.

'Countries such as China and India as well as other oil importing countries benefit greatly from lower imports in terms of lower import expenses as well as lower current account deficits.'

With prices declining, he said, the oil producing countries would be forced to cut investments when compared to oil importing countries.

'Furthermore, geopolitics is always important but its role shouldn't be exaggerated to produce misinformed decisions, as the GCC is a very co-operative region.'

'The Gulf as a whole seems to be doing well economically despite the geopolitical hype,' Mr Sfakianakis said.

The fact that there had been a smooth transition in Saudi Arabia, should dispel worries amongst foreigners.

'King Salman bin Abdulaziz Al Saud, who actually already had an integral leadership role so is not starting from scratch as it were.

'The issue of transition is a perfect example of how foreigners miscalculated the perception of risk and geopolitics.

'It was the quickest transition in the modern history of the country and the region,' he said.

Mr Sfakianakis said 'the milestone decision to liberalise the Saudi Tadawul Index was extremely significant, as until now it has been the only stock market of essential size that remained closed to foreigners.'

'It opens the Saudi financial sector which in turn will usher in a new era for GCC countries, as it is not a zero sum game; what benefits one GCC country benefits the others.'

He said the move allows investors to gain exposure to Saudi Arabia's 'formidable oil economy' by investing in its market.

'The kingdom is the world's largest oil exporter, and one of a handful of Opec nations with significant spare capacity that could swing markets,' he added.

The Gulf Today