Head of Saxo Strats
Summary: The energy sector could be an outperforming sector relative to the global equity market over the coming 12-15 months as mobility activity normalizes and the valuation gap closes which is currently a 49% valuation discount vs the global equity market on 2022 expectations. However, in the long-term we do not see the energy sector as a sector that will deliver the best risk-adjusted returns. We are also looking at the Q3 earnings release from Sea Ltd, the fasting growing e-commerce and gaming company in Southeast Asia, which is seeing revenue doubling from a year ago. However, serious questions are mounting over the business excluding gaming.
The global energy sector has responded aggressively to the news about very effective Covid-19 vaccines from both Pfizer and Moderna, discounting a return to normal energy markets as mobility activity returns to more normal levels in 2021. The global energy sector is up 27% driven by a positive response in crude oil prices and positioning as our recent commodity note talks about.
In a longer and relative perspective to the global equity market the energy sector is still down 60% since the recent relative peak in January 2017. The recent move has closed the relative gap by 17% but there is still long way for energy markets to recover their position in financial markets. The energy sector is only 2.3% of S&P 500 and 5.1% of the global equity market including emerging markets. The move into energy stocks is part of a bigger move in equities from growth and momentum stocks into value and pro-cyclical sectors. The big question is whether this rotation will continue and whether 2021 could become the big comeback year for energy stocks that have suffered from Covid-19 and investors’ souring sentiment on black vs green energy.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
