Energy prices are frantically testing people's psychological defenses, and the capital market is fishing for gold.
In Europe in particular, the energy crisis has already been revealed at the beginning of this year, and the tensions in Ukraine have been "added to the fire" by the extreme heat of this summer: the price of European gas futures delivered in September rose by about 10% on the afternoon of August 26, hitting a record high of 343 euros (about 2376 yuan) per megawatt-hour (1,000 kWh, or 1,000 kWh of electricity); Electricity prices in Germany and France, two major European economies, also hit a record high on Friday, with France delivering baseload electricity next year reaching 1,130 euros/MWh (about 7.73 yuan/kWh), exceeding 1,000 euros for the first time in history; Similar products in Germany also reached a record high of 995 euros /MWh (about 6.81 yuan / kWh).
Statistics released by Eurostat at the end of last month showed that energy and food prices in the euro area continued to rise due to the situation in Ukraine, with inflation reaching a record high of 8.9% per annum in July. Energy prices rose 39.7% year-on-year in the month, which was the main factor driving inflation. Under energy concerns, Finland even plans to start a national energy-saving campaign on October 10 this year, when the weather turns cool and the heating season begins. Specific energy-saving initiatives include driving less and walking or cycling more, lowering indoor heating temperatures, and shortening bath times.
Although U.S. inflation slowed somewhat in July as gasoline prices fell, it was far from Fed Chairman Jerome Powell's goal. Last week, the Fed also released the strongest "eagle" of the year, and the market fell into a trough in a violent bump.
This makes investors increasingly hesitant about where to put their money. Analysts have sorted out some clues for investors. In their view, under the energy crisis, the industry and stocks have also produced winners and losers, such as German industrial and chemical companies, retailers, chipmakers and industry stocks as losers, while commodity companies and stocks have become the biggest winners.
Avoid the traps
The world is hot and cold with this. Soaring energy prices and threats to energy supply are affecting companies from China to Germany to the United States, as these factors drive up costs, threaten corporate profits, and force companies to shift some of their costs to consumers, thereby undermining demand. As a result, from German companies that are sensitive to energy prices to consumer-dependent U.S. retailers, they are the main victims of the energy crisis.
The heavy dependence of German companies on Russian energy makes some of Germany's largest companies particularly vulnerable. Citigroup tracked a basket of natural gas price-sensitive corporate stocks that underperformed Europe's Stoxx 600 this year, including Covestro AG, ThyssenKrupp AG and Siemens AG.
Moreover, as the energy crisis intensifies, retail is another loser. Last week, the stock prices of the two major U.S. retail companies fell sharply. High-end department store Nordstrom plunged 20 percent in just one trading day after lowering its full-year outlook, while Macy's also lowered its forecast. The UK Retail Equities Index has fallen around 35% so far this year.
Clive Burstow, head of global resources at Bank of Bahrain, said: "The energy crisis has created a lot of unknowns and concerns for the market. Record-high energy prices are driving inflation and slowing industrial capacity, which in turn is exacerbating supply chain disruptions around the world. ”
Ben Powell, an investment strategist at the BlackRock Investment Institute, said: "Frankly, consumers are facing a continued rise in the price of almost all commodities. As a result, the earnings of consumer companies will look a bit volatile in the coming quarters. ”
Inflationary pressures caused by soaring energy prices have also forced major central banks around the world to continue to aggressively raise interest rates, further straining the market as a whole. Powell released the strongest "eagle" of the year at the Jackson Hole central bank meeting last Friday, saying that even after interest rates reach restrictive levels, they will not rush to cut interest rates. Since the end of last week, two members of the ECB's Governing Council have said they should raise interest rates sharply in September, at least by 50 basis points, at the record high inflation in Europe. This forced "hawkish" attitude by global central banks has raised investor concerns. The latest data from Emerging Fund of Funds Research (EPFR) shows that global equity funds had $5.1 billion outflows in the week ended Aug. 24, with the first net outflow in three weeks from U.S. equities.
Not only central banks, but also some governments have introduced some "dramatic" policies in response to soaring energy prices, which have also made some industries the latest victims. For example, Japan is planning to return to nuclear energy, and Germany is reviving old coal-fired power plants. Many European countries, Japan, South Africa, and Pakistan have recently begun to implement power curtailment policies, the United States has also entered a state of power emergency, and Australia has previously suspended electricity market transactions. As power and other energy shortages worsen, this could spread to other countries.
Perstol said power rationing will affect multiple industries, including chipmakers that use large amounts of electricity to produce smaller semiconductors. In addition, the damage has spread to industrial and chemical companies. European fertilizer giants Yara International ASA and Grupa Azoty SA have both cut production significantly, and the reduction in fertilizer supply could affect agriculture and further drive up food costs. British automakers have also recently said soaring energy costs are threatening their output. On August 25, Honda Motor also announced on its official website that honda motor vehicles are once again facing production cuts due to the shortage of semiconductors and other components, the spread of the new crown epidemic and the stagnation of logistics. In addition to the reduction in production in the Japanese domestic market, Honda Motor's Chinese market also closed local factories due to chongqing's launch of an orderly electricity consumption first-level plan from August 17 to 24, expanding the "concession" of electricity time for industrial companies.
Beata Manthey, a global equity strategist at Citigroup, said: "Governments can print money to help the economy, but they can't print natural gas, print electricity. In addition to industrial and chemical companies and sectoral stocks, I am also concerned about cyclical growth stocks, which currently have higher price-to-earnings ratios, especially those in the consumer, technology and retail sectors. ”
Pick the winner
In any crisis, avoiding pitfalls is only half the battle, identifying potential winners is a top priority for stock traders. The most obvious beneficiaries of the energy crisis are commodity companies ranging from oil to gas producers to mining. For example, the energy stock index in European stock markets has risen about 26 percent this year.
Gary Dugan, chief executive of the Global CIO Office, said: "We are looking for investment opportunities in the energy sector. We can see that energy companies have very strong profits and good dividend payments. We are particularly interested in investment opportunities for energy companies in the United States, which imposes low windfall taxes on energy companies and is not at risk of raising taxes on energy companies in the short term. ”
Bank of America's private wealth management firm continues to adhere to the so-called FAANG 2.0 investment strategy, which is to invest in fuels, aerospace & defense, agriculture, nuclear and renewables, and gold and metals. Joseph Quinlan, the agency's chief market strategist, said: "This investment strategy is a game of betting on hard assets and hard power. These are the areas we've been hiding from market turmoil that have been working well this year compared to others. ”
He added that governments and businesses have shifted to renewable energy sources to reduce their reliance on fossil fuels, raising the industry's prospects. While the investment cases in this area are relatively vague in the short term, it will take time to improve the infrastructure for renewable energy, update the grid to adapt to green energy, and industrial equipment such as steel and aluminum is currently undersupplied, there are daily headlines highlighting soaring energy prices and their impact on households, businesses, economic growth and profits. "Ultimately, investors and stock pickers will have to accept that we will be in a new world that will not disappear." He said.
Mehvish Ayub, senior investment strategist at State Street Global Advisors, also said: "At the beginning of this year, the energy crisis had a very big impact on the market. Today, the market has accepted to some extent the energy crisis as one of the main macro contexts for investment. Therefore, in the large energy sector, he added, investors should pay more attention to fundamental issues such as the income of individual energy stock companies.