Kuala lumpur: Investors should diversify their portfolios and consider shifting towards low-risk, higher-quality investments during periods of uncertainty caused by volatile oil prices, according to Asia School of Business chief executive officer and president Prof Joseph Cherian. He emphasized the importance of diversification during these times, suggesting that gains in energy-related investments, driven by rising oil prices due to the ongoing war in West Asia, might help offset potential losses in sectors such as consumer cyclicals.
According to BERNAMA News Agency, Prof Cherian advised that investors adopt a 'smart investing' approach by temporarily shifting their focus to stronger, larger-cap companies that offer stable earnings and dividends amid uncertain market conditions. He highlighted the recent fluctuations in global oil prices, which have surpassed the US$100-per-barrel mark, posing risks to business planning, investment decisions, and the broader economic outlook across the region.
Prof Cherian explained that sharp and unpredictable movements in oil prices generate substantial uncertainty, given that fossil fuels are integral across nearly every sector, from transportation and manufacturing to energy production and consumer goods. The recent spike in crude oil prices, which reached beyond US$100 per barrel, was attributed to a supply crisis linked to the conflict in West Asia. However, a subsequent drop to US$81 per barrel for West Texas Intermediate (WTI) crude followed US President Donald Trump's announcement that the war would soon conclude.
He pointed out that such uncertainty in commodity prices, especially fossil fuels, complicates business and consumer planning. Erratic price changes can lead companies to postpone or reconsider major investments due to shifting cost structures. Prof Cherian noted that the economic impact of oil price volatility varies significantly between net oil producers and importers, with resource-rich countries potentially benefiting from higher crude prices, while import-dependent economies face increased production and living costs.
Malaysia, as a net oil producer, could benefit from stronger export earnings and enhanced economic returns tied to the energy sector. Conversely, economies heavily reliant on imported oil may experience adverse effects due to rising energy costs. Prof Cherian further observed that the impact of oil price volatility differs across industries and financial markets, depending on whether companies gain from higher energy prices or rely on oil as a key production input.
Increased oil prices can lead to improved performance for energy-related sectors, whereas industries dependent on fuel, such as manufacturing, may face elevated production costs. Consumers might also feel the pinch of rising oil prices through inflationary pressures, which could alter spending habits. Prof Cherian warned that higher oil prices typically lead to inflation and elevated living costs, thereby slowing economic growth and prompting households to reduce discretionary spending.
He noted that sectors associated with consumer discretionary goods and services could be particularly vulnerable during such periods, as consumers may delay or forego purchasing non-essential items like luxury appliances and other discretionary goods.