The price of natural gas in New York was around $4 per million British thermal units (Btu) last week. Prices have also fallen sharply in Europe recently, with the paramount reference price, the Dutch TTF index, trading around EUR 80 per megawatt-hour (MWh) last Tuesday, four times less than the record reached last August (EUR 340/MWH).
Russia's invasion of Ukraine and the subsequent measures taken to interrupt the gas supply to European countries had fuelled shortage fears for winter, resulting in a price spike that would have The European Union shake global energy markets.
But recent, warmer-than-expected winter temperatures have helped to contain demand and keep storage levels high. Last week, EU sites were about 84% full, a relatively comfortable situation even though temperatures are dropping again in the coming weeks.
Although energy prices have recently fallen, they will remain highly volatile this year, depending on weather conditions, news on the Ukrainian front, or the French nuclear fleet state. You can, however, generally keep the companies active in this sector, some even being to purchase.
Economic activity slows in China
The abrupt shift from a "zero covid" policy to a near-total openness in Chinese society has not been smooth. The dizzying rise in contamination (more than 250 million people infected in a few weeks) weighed on manufacturing activity in December 2022.
Thus, the PMI index, which measures manufacturing activity, stands at 47 and the service index at 41.6 (a figure below 50 means a contraction in activity). These levels were only reached at the beginning of the pandemic in 2020. Added to this is the crisis currently being experienced by the real estate sector. This is how, last year, Hong Kong's housing sales collapsed by 40%, the worst year since 2008.
Not everything is black. Thus the Chinese entrepreneurs' morale is on the rise for the current year, with many believing that the situation should improve as early as March (after the Chinese New Year celebrations). We also share that once the epidemic's peak has passed, the Chinese economy should recover even if we are not ready to see growth rates of 6/7%.
The yuan strength, the Chinese state fiscal margins - which can boost the economy in case of need - and the forced savings of hundreds of millions of Chinese, who are eager to consume and travel, are also factors that push investment in Chinese assets. Either at the bond level, as part of a defensive portfolio, or equities, whatever the proposed profile.