Earlier in February while I was writing it was a good time to be investing in oil and oil related I had no idea we were at the bottom of the market.  I knew it was a good time to be buying and that the downside was limited but like any professional investment consultant to “bet the ranch” or put all one’s money into any one investment would simply not be good advice.  Now in retrospect sure we should all have bet the ranch but I hope you did add energy to your portfolios at that time it would certainly have given your portfolio a healthy boost.  Now we are at energy in the mid US$50s a barrel near on double what is was back in February this year.  While I see more upside to come off of the OPEC agreements and intentions to cut back production to firm up a high-energy price I’m not so sure we can get back to US$100 anytime soon or at all sustainably.  With a big cut in production and rampant inflation it may be possible and these events are on the agenda but with shale production and other methods to more efficiently get energy out of the around and what with clean energy businesses providing a larger % of the energy mix will put a lot of downward pressure on oil price at minimum.

In fact, for the first time ever new projects in clean energy (solar, wind, hydro etc..) are outpacing new fossil fuel energy projects and so we are at that inflection point where “dirty” energy will look to taper off in terms of demand and eventually drop.  This does not bode well for the price of billions of barrels of oil trapped in the earth as much of that may never see the light of day going out 50 to 80 years.  The oil producing nations know this which is why they were pumping like no tomorrow which they have a market for their commodity and as such an oversupply developed to the point they all said let’s scale back to bring the price back up to profitable levels.  I for one would not want to hold oil related stocks long term out 15 or 20 years.  Of course, in the meantime the supply demand balances must be met and priced accordingly and we may well see one more (or a few more) peak oil price again before a further downward correction over time.

One area I do see in the very near term as a turnaround story is Russia.  The economy has been relatively beaten up over past few years with low oil price (a significant part of Russia’s economy is oil related) with the ruble trading at very low levels and a growing oil price makes me believe those companies will be a whole lot more profitable certainly in Ruble terms than they have been in recent years.  While the Russian index has risen a little** over the past years the currency has dropped which relatively insulated and isolated to a degree the Russian economy that along with the sanction and negative relations it’s had with the US over the past few years as well.   Though now with President elect Trump about to come in having a much better outlook and hope for relations with Russia which I believe is equally hoped for on Russia’s end we may see a resurgence of both the Rubble the Russia economy and its stock market.  As the companies listed in Russia are trading at low valuations I do believe the downside is limited and with the above elements in place should pave the way to definite growth.

If you don’t already have some exposure to Russia now might be a good time to (not bet the Ranch) but add some to your portfolio.

Richard Cayne originally from Montreal, Canada has lived in Asia for over 21 years and has helped thousands of High Net Worth Individuals and Corporates with International Investments and asset structuring. He spent a majority of these years in Tokyo Japan and currently spends most of his time in South East Asia with his base in Bangkok Thailand.  He can be reached at +66(0)2611-2561

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