Oil price spike will impact EMs; consumer staples looking attractive: William O’Neil

Dean Kim, Head of Global Research Product, William O'Neil + Co, believes oil price hikes will have repercussions for emerging markets (EMs).

In an interview to CNBC-TV18, Kim said, “Oil prices are going to spike and that is going to have repercussions for many countries, emerging countries like India, South Korea and even Japan; they are net importers of oil and that may certainly put pressure on the economy as well as inflation because oil represents about 26 percent of total imports for India and about 4 percent of GDP and it may have a chance to devalue the Indian rupee because of trade deficit and if that were to happen, inflation might start spiking.”

Kim is happy to see Sensex and Nifty find support at their 200- day moving averages (DMA). Highlighting his take on sectors, he said that consumer staples is looking good.

“The capital equipment and basic material names continue to look good in India. So stock like Blue Star, Linde India, Polyplex Corporation, Siemens. There are pockets of individual stocks like Sun Pharma, just breaking out, looks interesting as well, but the consumer staples are making a comeback and so Balrampur Chini Mills looks interesting and also ONGC continues to be very strong,” said Kim.

As far as the US market is concerned, Kim believes there is a fair chance that S&P 500 and Nasdaq will test their January lows. He said that the US 10-year bond yield is stalling because of the geopolitical tensions between Russia-Ukraine, as a result, the yield curve is seeing compression at the moment.

He said, “Because of the geopolitical situation, the 10-year yield is stalling or even retracting at the moment but at the same time, the short-end of the curve is rapidly rising and so we are seeing compression of the yield curve. To the 10-year yield gap, we are sitting at 45 bps; we were well above 90 just a couple of months ago. If they keep heading in that trajectory then the bond market is signalling for a major slowdown in the US economy and if that would happen then Fed will need to adjust its trajectory in terms of where the rates are going, but at the moment the yield curve is compressed.”

Watch the video for the full interview.