Head of Equity Strategy
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.
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
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