The dictator groupie Donald Trump may think Russian President Vladimir Putin is a “genius” for the way he invaded Ukraine, but the shareholders of Russia’s largest publicly traded companies may have a different assessment today.
After Putin ordered a wide scale invasion of Ukraine, the Moscow Stock Exchange (MOEX) “suspended trading on all its stock exchanges until further notice.”
Shortly thereafter, Putin’s corrupted Russian oligarchs must have howled after a subsequent notice indicated the MOEX would restore trading at 10:00 a.m. Friday Moscow time.
Fortunately, very shortly after their exchanges re-opened, the U.S. dollar denominated RTS Index plunged by 50 percent and their MOEX Index tanked by 45 percent.
As of this weekend, the major Russian stock indices are all currently trading 50% or more below their pre-invasion highs. As of Monday, February 28, Russia has announced their stock markets will suspend trading for the rest of this week.
Plus we can all feel good that their stock market pain has also spread across all the largest publicly traded companies in Russia:
Gazprom, one of the largest (and most corrupt) natural gas companies in the world, lost over 50 percent as of Friday’s market close.
Rosneft, another large Russian dirty energy company, slumped by as much as 59 percent.
Novatek, Russia’s second largest natural gas producer, lost 48 percent.
And one of the largest banks in Russia, Sberbank, is trading as much as 80 percent below its late October 2021 highs.
The plunge in the Russian stock market, together with its now bloodied petro-currency, the Ruble, also hit record lows against the Euro and the U.S. Dollar.
Russia’s financial market collapse brought in the Russian central bank, the Bank of Russia, to desperately support their market and the currency.
The Bank of Russia announced that it was banning short selling and was initiating “interventions in the foreign exchange market, extending acceptable collateral for loans, and providing the banking sector with extra liquidity.”
Yet the Russian central bank does not have unlimited money to support Putin’s war criminal military aggressions against a victimized neighboring country.
And with significantly broadened global sanctions expected over the weekend from the U.S. and much of Europe (which are expected to further hit Russian banks and Russia’s ability to sell its debt), Putin may have created an unanticipated financial crisis at home instead of a simple deadly muscular display of his military ego.
Additionally, what will happen on Monday when the new announcements of heavier sanctions hit the newswires throughout the weekend is impossible to predict.
As we move forward, let sane Americans and global investors have some degree of human civility by boycotting all future purchases of Russian stocks - and divesting themselves of whatever remaining Russian shares they own.
In fact British Petroleum just announced they're divesting all 20% of their ownership of Russian energy company Rosneft AND removing two Russian oligarchs from their Board of Directors. It almost makes up for their Deepwater Horizon disaster!
And finally, on a more personal imperfect and karmic economic justice note, I hope Trump and his Russian oligarch loving crime family had money invested in Russian stocks. Because, of course, Putin is a genius.
The United States has seen devastating wildfires ravage the Pacific Northwest and Colorado, destructive tornadoes spreading out nationally, flooding in Miami, NYC and Detroit, on-going droughts in the Southwest, and increased threats of more frequent hurricanes around the Gulf states.
It is unmistakably clear some degree of climate change is responsible for the growing frequency of extreme climate caused natural disasters, not to mention their increased power in terms of the damage and destruction they leave in their wake.
The International Monetary Fund’s (IMF) latest World Economic Outlook states that the losses from unmitigated climate change on global "gross domestic product" (GDP) will average 15 per cent by 2100 (with a range of three per cent to 30 per cent).
Likewise, the "Network for Greening the Financial System" (established by eight central banks following the signing of the Paris Agreement) indicates a reduction of 1.5 per cent to 23 per cent in global GDP.
Yet, at a time of record-high government debt levels, the ability of public fiscal policy to adequately respond to climate change impacts will be constrained. All of this is to say that private capital will play an increasingly large role in the world’s attempt to mitigate the economic costs of climate change disasters.
The good news is that scientists still say there is time to avoid the worst-case projections, meaning that investors can stand to benefit from the long-term global shift to a non-fossil fuel, low-carbon economy.
One of our biggest investment opportunities going forward will come in the form of renewable energy (much needed new and updating infrastructure spending will also reduce the potential problems created by extreme weather events).
Of course this is not a new idea for investors; but the scope of investment required for the world to meet its climate risk mitigation objective is massive.
Total spending will have to reach an annual average of US$2 trillion by 2030 (for reference, spending in 2018 was US$900 billion), according to the International Energy Agency (IEA). This shift is already happening, as market forces have taken over.
The building of new fossil fuel power generation stations - except in the dirty energy states whose politicians are bribed by lobby money - slowly being phased out, especially coal. Companies and utility providers specializing in solar, hydro, wind and geothermal technology will stand to benefit as a result (nuclear, though able to produce clean energy, appears to lack the political appetite now).
Solar power is in line to be the big winner: IMF research gives it the largest jobs multiplier, making it a logical first choice for politicians looking for bipartisan support regarding infrastructure spending.
The biggest concern surrounding solar renewables is the lack of “baseload” ability — for example, peak energy demands are not always when the sun is shining the most. For that reason, technologies supporting "energy storage" capacity also must grow.
Importantly, the cost of renewable energy technology has come down dramatically and is now in-line, or cheaper, than dirty energy alternatives. And that is before factoring in the externality costs (pollution, carbon dioxide) of fossil fuels.
Economic analysis as far back as 2015 reveals renewables spending to be US$4.7 trillion in aggregate, or 6.3 per cent of GDP. The transition to renewables would accelerate even faster if fossil fuels weren’t currently benefiting from such massive direct and indirect subsidies from lobbly-money co-dependent governments.
Nonetheless, the world has moved past the tipping point when renewable energy sources are cheaper than dirty energy plants. Investors will want to have exposure to this secular bull market industry.
Besides clean energy, the next most promising clean energy opportunity comes in the form of electric vehicles.
Tesla’s story is well known among investors and is the biggest “pure-play” company on this theme, but almost all auto manufacturers are moving in this direction.
Globally, the IEA estimates there are only eight million electric vehicles on the road but predicts that number will be 120 million by 2030 (potentially as high as 250 million depending on the scenario).
The above energy sources are two of the largest opportunities that come to mind when thinking about investing around the climate change theme.
Other opportunities worth mentioning include specific rare earth metals (both the commodities directly and through mining companies), since demand will grow alongside the need for battery technology.
Plus, environmental consulting and engineering and construction service companies will benefit from the changing infrastructure demands to a low-carbon economy; including carbon capture and newer energy storage technologies.
Finally, a potential investment idea that is often overlooked is geothermal energy. This is not the first source that typically comes to mind when thinking of “green” alternatives, but it solves two key problems.
First, it addresses the issue of peak production versus peak demand. Power generation can be adapted to match any demand curve since the flow of heat from underground can be increased or decreased with relative ease.
Second, and perhaps more importantly from a political perspective, the expertise and resources that oil and gas companies have in drilling and maintaining oil wells can be put to use in the construction of geothermal power plants (which require creating a network of reservoirs to cycle the heat above ground).
Geothermal plant construction is a natural solution for transitioning a workers who feel threatened by a move away from fossil fuels, making it an easier political decision for governments.
Renewable technology successes are tied to economic geography
It should be mentioned that betting on any one technology or solution may not be a prudent investment decision as it is too early to call a clear winner in many cases.
Furthermore, given the early-stage nature for some technologies, investors with the ability and risk tolerance will consider looking at private companies - even though there is no shortage of publicly-traded stock companies either.
Bottom line: As governments attempt to make up for lost time as the climate approaches the critical 2-C warming threshold that scientists have warned about, renewable energy investment opportunities will continue to grow.
As such, private capital will also need to play a critical role in this global energy transformation, as informed electorates demand more and more action on climate change.
Finally, the economic recovery from the COVID-19 pandemic is an important opportunity for governments to accelerate investments, through green infrastructure spending and the like, wherever there is political appetite for economic stimulus.
Much like the industrial revolution, the coming decades will open several opportunities for investors to take advantage of shifts in global priorities and technological breakthroughs.
David Rosenberg, Rosenberg Research & Associates