Potential for sustained oil price rise biggest risk to global economy - LGIM |
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Wed, 24 Oct 2007 15:28
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LONDON (Thomson Financial) - The potential for a 'sustained and uncontrollable' rise in oil prices is the biggest risk facing the global economy, believes a leading UK fund management group.Legal and General Investment Management said although it is 'cautiously optimistic' on future prospects, risks to the global economy are on the rise.Most market commentators believe there has been a rebalancing of growth away from developed economies to the developing nations, but LGIM argue this may have a sting in its tail in the form of rising resource prices - metals, food and most importantly oil.'The biggest risk to our and to the consensus view is that oil prices see a sustained and uncontrollable rise,' said Julien Garren, investment strategist at LGIM.'Such an event, which could happen even without a political crisis in the Middle East, would generate severe pressure on the US consumer -- already the weakest link in the global economic chain,' he said.In the event of a global slowdown, demand for oil should go down, but if the world was rebalancing, demand would only slow in developed countries, while increasing in developing nations.There is a risk, Garren argued, that oil is undervalued, particularly given rising demand coupled with limited supply, as well as a massive increase in the costs of production.He also pointed to under-investment in resources and advocated buying sectors such as basic resourcing, oil and engineers. These not only offer the highest value, but also act as a hedge against a substantial oil price rise, Garren said.jessica.mortimer@thomson.comjkm/jrrCOPYRIGHTCopyright Thomson Financial News Limited 2007. All rights reserved.The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.
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