Energy renaissance as post COVID-19 world gets priced in
Published 26-NOV-2020 12:24 P.M.
2 minute read
Hey! Looks like you have stumbled on the section of our website where we have archived articles from our old business model.
In 2019 the original founding team returned to run Next Investors, we changed our business model to only write about stocks we carefully research and are invested in for the long term.
The below articles were written under our previous business model. We have kept these articles online here for your reference.
Our new mission is to build a high performing ASX micro cap investment portfolio and share our research, analysis and investment strategy with our readers.
Click Here to View Latest Articles
Energy stocks are rising against the global equity market, extending the massive rally since 8 November when Pfizer announced its COVID-19 vaccine writes Peter Garnry, Head of Equity Strategy at Saxo Bank.
On Monday, energy stocks rose on better than expected US November PMI figures.
Since the market got the first COVID-19 vaccine news from Pfizer on 8 November, energy stocks have outperformed global equities by 24% underscoring investors are positioning themselves for a normalisation in 2021.
Brent crude has also moved into backwardation, suggesting oil markets are normalising which could mean both higher prices and higher volume.
Before we get too carried away about the outlook, it is worth recognising the fact that work-from-home and flexible work hours could still cause a more permanent reduction in oil demand, and the transition to electric vehicles will also add headwinds over the coming years. But as we have seen before, the energy sector’s underperformance relative to the global equity market has been massive – down 76% since the peak in 2008.
This underperformance combined with low equity valuation could make energy stocks the best segment in global equities in 2021.
Vaccine good for energy
The new COVID-19 vaccine from AstraZeneca can be stored at refrigerator temperatures for much longer than the Pfizer and Moderna mRNA vaccines, which means that distribution will be much faster, thus the market is discounting a faster path to normalisation. This is good for energy no matter what and could prove a catalyst over the coming months.
With Yellen becoming the new US Treasury Secretary, we have the potential setup for a much tighter link between fiscal and monetary policy in the US and effectively it is a move closer to the absolute loss of central bank independence.
Yellen has focused her academia career on labour issues and inequality, and such her reign as treasurer could lead to more focus on full employment through fiscal measures with central banks asked to facilitate these policies.
The Republicans still control the US senate, although the special senate election in Georgia in January could change that, and as such it is still uncertain whether Biden and Yellen can deliver big fiscal impulse to the US economy. Nevertheless, the market is currently betting on it and energy stocks are a natural extension of this bet.
General Information Only
S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.
Conflicts of Interest Notice
S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.
Publication Notice and Disclaimer
The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.
Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.
This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.