Various economies and country-related exchange traded funds could react differently as we see a rebound in crude oil prices.
Major oil producers will enjoy a reprieve in their energy-induced sell-off, but large consumers may find their wallets a little lighter after paying for higher energy costs.
“If sustained, higher oil prices would reduce the gains in consumer real income and spending that we currently forecast,” Adam Slater, a senior economist at Oxford Economics, said on CNBC. “And also risk blunting the boost to investment that we forecast based on reduced business costs.”
If Brent crude oil averaged $70 per barrel over the next two years, compared to the previous baseline forecast of $59.5 this year and $65.9 in 2016, Slater calculates that the overall economy could expand 2.7% this year and 2.8% this year.
However, looking at individual economies, growth may vary. For instance, the biggest winners of higher energy prices would include major exporters like Gulf nations, Russia and Malaysia.
For Gulf country investments, the Market Vectors Gulf States Index ETF (NYSEArca: MES) and WisdomTree Middle East Dividend Fund (NasdaqGM: GULF) provide broad exposure to the region. MES includes UAE 37.2%, Qatar 23.9%, Kuwait 21.1% and Oman 7.9%. GULF includes Qatar 33.9%, UAE 39.4%, Kuwait 15.4%, Morocco 6.3%, Egypt 6.0%, Oman 4.4%, Bahrain 2.6% and Jordan 2.1%.
Alternatively, investors can now focus on the United Arab Emirates or Qatar through the iShares MSCI UAE Capped ETF (NasdaqGM: UAE) and the iShares MSCI Qatar Capped ETF (NasdaqGM: QAT).
The Market Vectors Russia ETF (NYSEArca: RSX), iShares MSCI Russia Capped ETF (NYSEArca: ERUS) and SPDR S&P Russia ETF (NYSEArca: RBL) all provide broad exposure to Russia’s markets. The Russia ETFs are also heavily weighted toward oil giants. For instance, RSX includes 8.3% Gazprom and 7.8% Lukoil, which make up part of the ETF’s 43.5% tilt toward the energy sector. [Russia Economy, ETFs on the Mend]
Additionally, investors can track Malaysia’s markets through the iShares MSCI Malaysia ETF (NYSEArca: EWM), which includes a heavy position in financials at 32.2%, followed by utilities 13.9% and industrials 13.3%.
On the other hand, large energy consumers will likely feel the weight of costlier crude oil ahead. For starters, the U.S. economy, which is basically based off American consumption, has could slow. The SPDR S&P 500 ETF (NYSEArca: SPY) has increased 2.9% so far this year. [Comparing Popular S&P 500 ETF Options]
Additionally, Europe is another major importer. Currency-hedged plays have been popular this year, with the Deutsche X-trackers MSCI EMU Hedged Equity ETF (NYSEArca: DBEZ), iShares Currency Hedged MSCI EMU ETF (NYSEArca: HEZU) and WisdomTree Europe Hedged Equity Fund (NYSEArca: HEDJ) all up a little over 17% year-to-date. [Earnings Beats Help Support Europe ETFs’ Outlook]
Moreover, emerging countries that import the majority of their fuel will also take a hit. Slater warns that China, which is already facing a slowdown, could experience steeper declines, with growth falling to 5.6% next year from 6.5% this year if oil averages $70 per barrel. The iShares China Large-Cap ETF (NYSEArca: FXI), the largest China-related ETF that tracks Chinese companies listed on the Hong Kong stock exchange, jumped 20.3% so far this year while the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (NYSEArca: ASHR), which tracks mainland Chinese A-shares, surged 29.2%. [China ETFs: Growing Concern After The Recent Surge]
Lastly, India, another large importer, could face slower growth by a few percentage points. Slater expects the economy to slip to 7.4% growth this year and 7.3% in 2016. Year-to-date, the WisdomTree India Earnings Fund (NYSEArca: EPI) dipped 1.0%, iShares India 50 ETF (NasdaqGM: INDY) was 0.1% lower and PowerShares India Portfolio (NYSEArca: PIN) was up 2.1%.
For more information on the global markets, visit our global ETFs category.
Max Chen contributed to this article.