As we approach the close of 2023, It is inevitable to analyze the changes that have shaken global markets. One of the main factors is the Petroleum, whose behavior It has oscillated between increases and uncertainty, although it is slowly approaching the symbolic level of US$100.
Throughout this year there was a continued increase in global growth expectations for 2023. The United States has led this optimism, with a notable increase in its growth expectations, thanks to a 1.7% increase in the projection of economists surveyed by Bloomberg to 2%. Italy, Canada, Belgium and the United Kingdom They have also seen their projections revised upwards, reflecting an optimism that goes beyond US borders.
However, in 2024 the situation becomes more uncertain. Growth estimates have changed direction, pointing towards a slowdown in several regions, especially in the Eurozone and China. This leads us to wonder if we are seeing a consistent dynamic or simply a pause before future challenges.
Oil: the influence of China
Emerging markets have experienced a year of ups and downs. China has had a disappointing year, significantly affecting these markets. The lower dynamism in Beijing naturally translates into weaker growth for the region, for which an expansion of 3.8% in its aggregate GDP is estimated in 2023. Latin America and EMEA have provided some relief, but the overall picture is still marked by uncertainty.
This year was expected to be marked by the impact of higher interest rates across major economies. However, resilience in growth led to think that the lagged impact of monetary adjustments is likely to arrive more strongly in 2024.
According to the consensus of economists surveyed in Bloomberg, global growth in 2024 would be 2.7%, lower than the 2.9% initially expected at the beginning of the year and in line with what is projected for 2023. For reference , the average GDP growth between 1980 and 2022 was 3.4% for the global economy. Therefore, We see downside risks resulting from the lagged effect of monetary policy, particularly in developed markets, and the growing uncertainty regarding the dynamics of the real estate market in China.
The adjustment in growth expectations had a mixed impact on the different types of commodities, with oil and gold being the only ones that are in positive territory so far this year. Since June, the price of oil has risen more than 20%, surpassing the $90 per barrel mark. This increase has been due, in part, to continued cuts in oil production by OPEC, which has balanced supply and demand. The balance places oil and gold with positive returns since the beginning of the year, close to 5%. Gold’s dynamics are mainly explained by the rise registered during the brief banking crisis in the United States and Europe in March.
Energy sector valuations in the S&P500 appear attractive on a historical basis and They could get an additional boost from the recovery in oil prices. This has been supported by solid results from companies in the sector, following high international prices in 2021 and 2022.
Share prices in the sector have experienced a recovery since mid-June, when they accumulated a drop of 13% since the beginning of the year. This recovery has been 19% since then, in line with the increase in oil prices in the same period (20%). Despite this, The sector’s (expected) price/earnings ratio remains low by historical standards.
Oil: time to invest in stocks in the sector?
This leads us to believe that, in a favorable scenario in terms of economic activity, Energy stocks have advantages compared to other S&P500 sectors that have higher valuations and less support from strong earnings, which is not the case in the energy sector.
The lags in monetary policy could lead to less optimistic economic dynamics than what the market reflects. This could have a further impact on growth projections for 2024, which have been revised downwards of late, and makes us cautious about cyclical assets such as oil in the coming year.
In this sensewe maintain our recommendation of gold within commodities, an asset that has experienced a similar increase to that of oil, but for completely different reasons, which we consider justified.
Wealth Management Research – Balanz Capital
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