Emerging markets seen less daunted by oil in 2007

By Ellis Mnyandu

NEW YORK (Reuters) - How high crude oil prices could go next year is anybody's guess. But even with the risk of a price spike, fund managers told this week's Reuters Investment Outlook 2007 Summit in New York that emerging markets such as India were unlikely to feel a pinch, provided there was no sharp downturn in U.S. economic growth.

And with the dollar hitting some turbulence in the past two weeks, the fund managers said a drop in the greenback could boost oil affordability by some of the emerging market economies and help them sustain domestic growth.

"Countries like Korea and Taiwan have not suffered and their currencies have been getting stronger which offsets the impact of higher oil prices set in U.S. dollar terms," said emerging market investor Mark Mobius, managing director of Templeton Asset Management.

According to the fund managers, what would determine the resiliency of some of the emerging market economies, including China, was the amount of available oil, not so much its price.

"There's no doubt higher oil prices squeeze the economy quite a bit but we're all breathing easier under $65 a barrel," said Andrew Foster, who runs Asia funds at U.S.-based Matthews International Capital Management.

"The buying power of Asia with respect to oil has not been diminished. They can afford the price of oil. The issue is probably more about the quantity of oil out there than it's about the price of oil."

Bill Gross, chief investment officer of PIMCO said "to me $60 is fine" as he projected another strong year for commodities.

"I have a proclivity to think that OPEC pumped out a lot of oil a month or two months ago in front of the election, and now there is sort of an all-clear sign and they have the ability to pull some of that back," Gross said.

"That becomes supportive in terms of the $60 a barrel price."

He added that his expectation was for "commodities to continue to do well overall ... subject to global growth at the 4 percent level."

But that growth view is predicated on expectations that the U.S. housing downturn won't prove be too much of a drag on U.S. consumers, who have been cashing in from nearly a decade of rising home values to drive spending, a key pillar of U.S. economic activity.

On Thursday, U.S. crude oil futures rose following OPEC's plan to cut output 500,000 barrels per day from February 1, but remained below $65 a barrel.

At 1335 p.m. EST (1835 GMT) on the New York Mercantile Exchange, January crude CLF7 was up $1.12, or 1.8 percent, at $62.47 per barrel.