The Secret Winner of Low Oil Prices

by Sean Brodrick

Crude oil keeps bouncing along around $80 a barrel. The price of West Texas Intermediate crude oil, the U.S. benchmark, has lost 24% of its value since its most recent high in June. We know who low oil prices hurts - producers, drillers and services companies. But there's a secret winner that most of the market doesn't know about - and you can profit from it.

I'm talking about India. It's just one of the energy-poor emerging market countries - which also include Egypt, Morocco, Tunisia and others - that are getting a big helping of relief from lower oil prices. But India is going to be helped in three different ways.

Is that good for Indian stocks? Bank on it! Here's why:

1. Less of a Pinch From Fuel Subsidies. India subsidizes fuel for its poorest citizens. In a country of 1.25 billion people, that's a lot of subsidies. India's petroleum subsidy bill grew nearly sixfold over the past five years. This year, the government paid sellers $10.6 billion to compensate for selling diesel, kerosene and propane cooking gas at a loss.

The government is budgeting for a 26% decline in its petroleum subsidy in the current financial year as part of a market liberalization program. Narendra Modi, India's prime minister, plans to end subsidies for many types of fuel altogether. That was originally going to hurt a lot; now, India might beat that target.

2. Moderating Inflation. Thanks in part to falling fuel prices, India's consumer inflation has eased to its lowest rate in nearly three years. In September, India's consumer price index rose 6.46% from a year earlier. That was much lower than the 7.73% inflation growth in August. And last year, inflation ran at a whopping 10%.

If inflation moderates further, the Reserve Bank of India might be able to cut interest rates. That, in turn, would give business a shot in the arm.

Energy is also a big input into fertilizer, so lower fuel prices should lower fertilizer prices. For a country like India with such a large agrarian economy, that's huge!

3. Improving the Balance of Trade. India is already getting some relief in this area. Spending on oil imports is slipping as a percentage of total imports, thanks to a 17% drop in the price India pays for international oil imports since June. Every $10 per barrel fall in crude oil prices lowers the country's annual oil import bill by $16 billion to $17 billion.

And of course, money that people in India don't have to spend on fuel is money they can spend on other things. This, in turn, is positive for India's economy and stock market.

You can see that India's market, as tracked by the iShares MSCI India Index Fund (NYSE: INDA), is in an uptrend. But it has consolidated for most of this year. I think the next move is higher, and it could be soon.

One more thing: I've stated that I think oil prices could stay in a downward trend through the end of this year. Now, a number of other analysts, including Goldman Sachs, are saying they don't expect oil to bottom until the middle of next year - if then. And their target is $70 per barrel.

Some other Chicken Littles expect oil to go a lot lower. I don't see that at all. But $70 in the next few months - sure, that could happen. And lower U.S. oil prices would go hand-in-hand with lower international oil prices. That would be another boost for India.

Sure, a lot of things could push the price of oil around. About the only thing that's assured is that the price of crude will zig and zag. But India has slipped the choke collar of stubbornly high oil prices. And that's a trend worth betting on.

Good investing,


P.S. Speaking of emerging opportunities in the energy sector, I recently discovered one company that's found a way to create gasoline... without using a drop of oil. This should be impossible. And the implications for this company, and its lucky investors, are staggering. To learn more, click here.

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Finding Profits All Over the World

An Oxford Club Member is - virtually by definition - a global investor. Our Editors and Members search for profit-making opportunities all over the world, from Dubuque to Dubai and from Tallahassee to Taiwan.

And we've been talking all year about the opportunities in emerging markets. In the January edition of The Oxford Communiqué, Alex Green declared 2014 to be the Year of the Emerging Market, adding: "If you want to increase your future returns while reducing your risk, you should add some of these emerging market stocks to your portfolio. They are likely to be among the world's best performers in 2014."

His reasoning is simple. Although U.S. equities could well have room to charge higher, it is getting tougher to find good values in domestic markets. Emerging economies are growing much faster than ours. And while they are more volatile, they tend to surge when we lag, so exposure to them adds safety, not risk, to a well-balanced portfolio.

Yet it's one thing to simply take note of the numbers and conclude that emerging markets make sense. It's quite another to put one's feet on the ground in countries around the world, investigating opportunities and market conditions in person. Sean recently returned from the Arctic Circle, where he was scouting opportunities in the oil industry, for example.

Alex is a frequent world traveler, too, often with Oxford Club Members. And when he travels he never fails to investigate the local prospects. Earlier this year, while sailing on the other side of the world, he told Members to be wary of the Australian economy, for example.

But on that same trip, he discovered a hidden gem in an unlikely place: Indonesia. And PT Telekomunikasi Indonesia (NYSE: TLK) has been one of the Oxford Trading Portfolio's biggest gainers of 2014, charging ahead more than 27% since Alex added it in March.

The company is Indonesia's largest telecommunications provider with more than 170 million subscribers and a presence in 300 cities. The numbers are enticing, he said, noting that annual sales have topped $8.6 billion. The company has more than 132 million cellphone users and more than 3.1 million fixed-broadband users - numbers that are both growing robustly.

And Alex observed something just as important, if less tangible, too: "In my travels through Indonesia I noticed that not just the ubiquitous motorbike drivers were gabbing on their cellphones but so were their kids!"

That's the kind of information you won't glean from a press release or earnings report. Sometimes, only seeing is believing.

- Bob Keaveney with Alexander Green

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