This analysis is part of the latest edition of Global Outlook which highlights that households should benefit but oil service companies will suffer along with countries heavily dependent on oil exports.

Keith Skeoch, CEO Standard Life Investments said:  “The effects of the oil price decline are being priced in now, for example in the Russian currency, the share price of UK oil companies and the energy sector of the US high yield debt market. So on balance we conclude that supply side rather than demand side factors are more important, and into Spring 2015 we should start to see the more beneficial effects of cheaper energy feed through, in consumer spending and non-oil corporate investment.”

Further comments from Standard Life Investments on the impact of oil on different markets:

Andrew Milligan, Head of Global Strategy: “Fund managers need to be highly selective, bearing in mind the different effects of significant currency and commodity movements, growing yield differentials and more volatile capital flows. As an example, oil is driving divergence between countries and sectors. This is another reason to stay neutral on emerging markets as a whole, relying on stock selection decisions to add greater value to portfolios.”

Susan Tarry, Investment Director, European Equities: “The scale of oil’s decline is such that it represents material incremental change for those stocks we already like or dislike for fundamental reasons. We see opportunity in the airline industry, Ryanair in particular, but envisage growing risks for companies like the oil equipment and services company Saipem.”

Mark Vincent, Investment Director, GEM Equities: “On current estimates, oil at this level will cost Russia $100 billion a year, while sanctions due to the Ukraine crisis will account for a further $40 billion. But not everyone is lamenting the fall of the rouble. One company that is thriving is Norilsk Nickel, Russia’s largest mining company which produces nickel and palladium, mostly sold overseas. These metals are priced in dollars which means the greenback’s strength against the rouble is a boon for its operations and profits.”

Richard House, Head of Emerging Market Debt: “Falling oil prices have significant implications for Venezuela, with the dominance of oil revenue in trade and fiscal accounts. Authorities seem reluctant to alter policies in response, and despite Venezuela having the largest oil reserves globally, the market prices in a high probability of sovereign default in the next few years.

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Global Perspectives

Standard Life Investments, the global investment manager, believes there will be further expansion of mergers and acquisition (M&A) activity into 2015, on the back of an improvement in the availability of funding, a reduction in economic uncertainty and continued pressure on businesses to reduce costs in a slow growth environment.

The latest edition of Global Perspective examines some of the key factors behind the recent recovery in M&A activity, and forecasts that activity will spread out from the USA into other regions. Drivers for more M&A in 2014-15 will be led by improved business confidence, based on the recovery in the global economy, especially the escape from recession across Europe, combined with continued pricing pressure in a world of low nominal GDP growth.

Andrew Milligan, Head of Global Strategy, Standard Life Investments, said: “In recent months, there has been considerable debate about whether or not companies will begin to invest, putting cash to work. We believe thatas cyclical forces start to take hold across the global economy, as business confidence improves, and as financing becomes easier, so the pickup in M&A will continue. This could be a way for some companies to boost market share, either in a sector where pricing or regulatory pressures are high, or in order to gain an advantage in a fast growing area.

“The upshot should be positive for stock market valuations and client portfolios. Following an upturn in activity in the US, we consider increased M&A in Europe, Asia and emerging markets will follow suit. M&A should also broaden out, away from media, autos, the internet and beverages towards, for example, finance, real estate, software and telecoms. Further improvements in credit availability in Europe, more confidence about Asia’s economic prospects and further regulatory pressures would all be examples of triggers which would generate additional activity into 2015.”

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Outlook for 2014: sustainable growth.

Standard Life Investments, the global investment manager, has announced that its House View is more confident about the economic backdrop into 2014 and advocates a move towards sustainable earning growth within client portfolios.

In the latest edition of Global Outlook, the House View highlights that during the last quarter financial markets have been affected by four major issues; an improvement in forward looking business cycle indicators in the developed markets, the pricing in of the Fed’s potential exit from its quantitative easing program, efforts by the Chinese authorities to stabilise the economy, and a revival of political and geopolitical risks. The net result has been a decisive shift towards developed market assets, which has supported Standard Life Investments’ House View performance.

Andrew Milligan, Head of Global Strategy, Standard Life Investments said:

“Our portfolios are slowly becoming more cyclical. There are still yield opportunities which should be sought in a world of low interest rates – after all both the ECB and MPC have announced forward guidance. Nevertheless, the economic cycle is expected to become more positive into 2014; the key issue is the ability of companies to drive forward profits growth.

“In broad terms, the House View is Heavy in equity and in real estate, Neutral in Credit and Cash, and Light in Government Bonds. Within fixed income assets, it prefers higher yielding credit to investment grade or government bonds. Within equity markets, it favours the US, and to a lesser extent Japan and the UK to Europe and emerging markets.

“Japan continues to be examined carefully in the House View, as its performance could have a material impact on portfolios. The market has priced in the new monetary and fiscal policies of the Abe government, and eagerly awaits good or bad news on the structural reforms and associated tax announcements which the government is considering.”

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