In this briefing:
1. Oil Prices Are Up. Which Stock Benefits?
Oil prices shot back up to US$60/bbl levels in 2019. ‘Experts’ claim it has to do with lower US inventories, but we believe the truth is murkier than that. Instead of dwelling on the dynamics, let’s focus on which stocks benefits when the pendulum swings the other way.
- Near-term: PTTEP is the most direct beneficiary of higher oil prices. The crude they dig, rig, or suck out of the Earth immediately appreciates in value, and so does sentiments for their stock. It may also impact monetary policies, raising interest rates and benefiting banks.
- Medium-term, we expect people to focus on substitutes. Alternative energy providers like Bangchak could see improvement in volumes as their product becomes more competitive.
- Longer term, people would be more willing to switch to electric cars, benefiting both chargers (think EA) and coal (Banpu….someone still needs to generate electricity).
- There could also be lifestyle changes, which means condos closer to offices become more popular as a means to save on transport cost. Think AP, Sansiri, and BTS.
2. Debt Ratios Do Matter
Monetary diarrhoea has inflated the debt structure.
The death of the Bretton Woods monetary system in 1971 paved the way for unbridled money printing. The resulting Great Inflation inflicted huge negative real returns on bondholders and stockholders until 1982. Thereafter, many countries, especially EMs, linked their exchange rates to the dollar, resulting in the fastest ever-growth in global foreign exchange reserves. In addition, central bank puts and then extraordinary fiscal and monetary policies turned it into the most virulent asset bubble in history, despite monetary mayhem, exemplified by numerous banking crises and three big stock market drawdowns.
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