August 5th 2020
Oil energy giants (US/EU) - The oil energy giants concluded earnings this week with BP in the UK announcing quarterly numbers. There is an interesting story here between the Europeans and the US companies. The Europeans have been moving quickly to diversify their portfolios with less reliance on fossil fuels and more on alternative energy sources (clean tech), an area that Canada plays well in. The US have been staying with the fossil fuels, for now anyway - it is worth pointing out that the shale boom is over and this will impact the oil and gas supply chain.
This story also speaks to a larger push by investors into ESG funds (environmental, social, governance) and this has accelerated since the start of the pandemic. It is influencing how individuals and now institutions are changing behaviors and approaches to managing their businesses. Investors and businesses will actively seek out those companies and individuals that are progressive.
Emerging market risk - On Tuesday, the IMF warned that emerging economies are facing an external debt crisis brought on by the surge in COVID 19 cases and deaths. In particular, countries that entered into the pandemic with a large current account deficits, combined with low reserves. A large proportion of these countries rely on oil and tourism, and the resulting impact, both nationally and globally could lead to falls in their current account balances by 2-3%.
Countries like Costa Rica, which rely heavily on tourism, are facing a potential current account balance drop of 2% in GDP and oil rich/dependent countries like Russia are looking at 3%.
Some countries will likely consider potential capital controls or currency intervention policies. These policies will pose a risk to international trade and will be counterproductive.
Gold Rally - Gold has been on a surge in the past few months – a record breaking rally as bond yields have been depressed over the impact of the pandemic. The precious commodity, which has always been a safety play in times of crisis, has surged 32% this year. Good news for Canadian miners and the supply chains linked to them.