Discretionary Investment Management | Dario Milizia
05 Sep 22

Weekly update – Costs and opportunities

This week’s update is written by Dario Milizia in our discretionary investment team in Bishop’s Stortford.

Market volatility spiked into the end of the last week, the tech-heavy NASDAQ closing the week out down 3.2%. The FTSE 100 fared better, closing down around 1.1%. Some European Indices performed slightly better, with the DAX returning 1.2% whilst the CAC40 fell only slightly, by around 0.9%. Monday, however, has seen nearly all major indices opening down. Indeed, the Euro has fallen to a 20 year low against the dollar (although US markets remain closed due to the ‘Labour Day’ holiday).

Whilst we can speculate about exactly what is moving markets, we of course cannot be for sure. This being said, the decision by Gazprom (the energy corporation predominantly owned by the Russian state) to suspend gas delivery via the Nord Stream 1 pipeline into Germany no doubt has had an impact, as Europe grapples with the ongoing energy and cost of living crisis. Initially, this was supposedly due to a “technical fault”, however the Kremlin has now said that the pipeline will remain closed indefinitely, until Western sanctions against Moscow are lifted.

The general market malaise does not look like it will ease any time soon, as the often spoken about concerns over inflation and the impact of rate rises continues to weigh on investor sentiment. Finding positives in the current environment is difficult, however sometimes, as the saying goes, when one door closes another one opens.

For example, the news over gas supplies from Russia demonstrates the need for countries, such as Germany, to build resilience into the energy supply. How might they do this? One way would be to build the infrastructure to allow for greater delivery of LNG (liquid natural gas) and indeed, this is being done, with Germany’s first LNG terminal to be built in the north of the country in Wilhelmshaven. Other European countries are also exploring such avenues, with both France and Italy reportedly looking towards floating LNG terminals to relieve some of the pressure caused by reliance on Russian gas.

Logically, we can argue that in turn this will lead to greater demand for the shipping of LNG. One potential beneficiary of this is Wartsila – a Finnish company renowned for its marine engines and a (self-proclaimed) “world leading designer and supplier of advanced cargo handling and reliquefication systems to gas carrier of all sizes”. We feel the company’s balance sheet is in good shape and the share price has fallen back significantly from its 2021 highs; whilst the shares have not yet made it into the Blue Chip portfolio, this could illustrate how potential opportunities can sometimes present themselves during difficult times.

On a final note, sadly this is not a “carbon free” solution to the problem being faced by many European countries. The goal to achieve clean and readily available energy will not happen overnight and a sensible transition will be needed in order to keep the lights on and people warm. The energy crisis has brought into focus just how reliant society is on fossil fuels and how far there is to go before clean alternatives can become a viable solution. But in keeping with the theme of the article, again, this presents potential opportunities for investment into what is one of our core ESG themes – energy transition!

We hope you have a good week.

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