Energy Sector So Inexpensive - Investors Inevitably Return Is the energy sector now so cheap that investors will put their green preferences on a back burner?
Wariness that set in at the end of Monday’s session is morphing into full-on anxiety for Tuesday, as bond yields surge and stocks, led by a hefty fall for tech names.
Some of that may be down to a U.S. government shutdown threat amid Republican/Democrat brinkmanship over a debt ceiling. But it’s also down to an awakening over an energy crunch in Europe and elsewhere that may not leave U.S. investors alone, say analysts.
“I think yesterday was the first sign in quite some time where we got a glimpse of what an energy crunch, and more important, high interest rates mean for equities,” said Peter Garnry, head of equity strategy at Saxo Bank, in a podcast on Tuesday.
Energy prices are surging in Europe this morning, including natural gas, and one of the region’s big competitors is China. That global powerhouse has been suffering electricity shortages that have closed factories, which could worsen COVID-19 pandemic-fueled problems such as a semiconductor shortages. And the scramble for natural gas comes as countries have been trying to reach for cleaner energy.
With oil prices also pushing higher — Brent is on the doorstop of $80 this morning — our call of the day from Saxo Bank’s Garnry says investors may be herded back toward some unloved sectors soon.
“I think at one point, the mining and energy sector will be too attractive in terms of cash flow, that I think more investors will just put the ESG focus on standby and go all in on the energy and mining sector,” he said.
ESG refers to investments that take into account environmental, social, and governance concerns, a sector that’s been thrust into the spotlight amid climate change warnings.
Garnry points to the below slide that shows the ratio between the MSCI World Energy Sector net total returns in dollars versus MSCI World.