Low oil prices provide marginal benefit to emerging market firms

The Dollar Business Bureau The cash flow impact upon corporates of lower oil prices in Asia is positive, neutral in Latin America and mixed for EMEA (Europe, Middle East & Africa), said a report. A Fitch Ratings report which took account of the cash flow impact upon corporates of lower oil prices in Brazil, China, India, Indonesia, Mexico, Russia, Turkey and South Africa, mentioned the above statement in its report entitled, 'Effect of Low Oil Prices on Emerging Market Corporates.' Fitch believes Brazilian and Mexican corporates can expect no positive impact in terms of credit quality despite low oil prices. 'In Brazil, prices are highly regulated and have risen in U.S. dollar terms due to the depreciation of the Brazilian real. Fuel isn't a large part of the consumer's daily expenses, nor does it make up a large portion of the inflation basket,' said Joe Bormann, Managing Director and Deputy Regional Group Head of Fitch's Latin America Corporate group. 'In Mexico prices also remain highly regulated, and lower international oil prices will not positively impact Mexican corporates' cash flow,' said Bormann. 'Fitch expects upgrades and downgrades to be evenly balanced during 2015 in Mexico despite no positive cash flow benefit from lower oil prices globally.' Meanwhile, a Moody’s report stated that India's monthly trade balance will likely be a deficit of US$ 8.9 billion for April. Exports have struggled amidst falling commodity prices. While low oil prices benefit the economy, they hurt India's third-largest export commodity, which is petroleum. The Indian rupee has also been stubbornly high on a trade-weighted basis, which means Indian companies are losing competitiveness on the global market. The import bill will also slide because of lower oil prices, although imports of consumer goods are likely to continue their upward momentum from recent months.    

May 8, 2015 | 9:07 pm IST.