Investors are “overreacting” to the current drop in oil prices and shouldn’t be overly concerned with fluctuations in the global markets, Dubai businessman Khalaf Ahmad Al Habtoor has said.
His comments come as GCC stock markets have seen millions being wiped out following the recent oil price slump. Brent crude dropped to a fresh five-year low of $63.56 on Wednesday.
A recent report from investment firm Morgan Stanley also predicted that prices could drop as low as $43 a barrel next year.
However Al Habtoor dismissed the report as being more academic than practical. “This is just an assessment and it has led the bears to come out. What people have to remember is that the stock market is not an indicator of the overall economy.”
He stressed that a drop in oil prices isn’t necessarily a bad thing.
“In fact, it’s very positive for the majority of sector like airlines and shipping, transportation and manufacturing,” the Al Habtoor Group chairman said, adding he can’t “understand” why investors are running for safety.
A report released on Wednesday by global aviation body International Air Transport Association (IATA) also revealed that airlines are set to report their strongest profit margin in more than five years in 2015, mainly due to lower oil prices. IATA also revised its profit forecast for 2014 to $19.9 billion, up from a previous estimate of $18 billion, adding that net profit would rise to $25 billion in 2015.
“The benefits of lower oil prices outweigh the negatives. A drop in oil prices benefits many businesses. Sure, energy companies lose out, but cheaper oil is generally good for the economy and the overall stock market,” said Al Habtoor.
“Companies that use oil as an input experience a reduction in their cost of production. This means profit margins go up, and this can be passed on to the consumer.”
Speaking on the UAE market, Al Habtoor said that country has proved it can withstand global market turmoil following its recovery from the global crisis in 2008.
“The UAE has a diversified economy that is not wholly reliant on oil. Plus the UAE government put measures in place to give itself a buffer, and it is in a better position than ever to cope with external shocks.”