i amIn 2022, the road to riches is connected by lightning and reaches Vladimir Putin’s front door.
As unlikely as it sounds, some of the best-performing stock and bond markets share a dirty secret. They redoubled their economic ties with Russia and pumped large amounts of coal into their energy grids.
Louis-Vincent Gave, co-founder of financial research firm Gavekal, was the first to observe on the Macro Voices podcast.
“So the transition is already happening,” Gave told Macro Voices. “And it’s happening against countries that either want to trade with Russia or are willing to burn coal.”
This may be good news for people who treasure the planet and are working to reverse the effects of human-made climate change. It may also be disconcerting for those who are reluctant to support an authoritarian state that has invaded its neighbor Ukraine without provocation and is alleged to have committed unspeakable war crimes there. Still, when it comes to a game that’s purely about money, with no thought to morality or the future, it’s onto something, according to data collected by Gave. Forbes.
“I see the thought process,” said Charlie Wilson, portfolio manager for Thornburg Investment Management’s Global Development Fund. Forbes. “Starting with the logic behind that statement, if you had the ability to save precious energy, then this year was definitely a tailspin.”
Consider the cases of Brazil and India, two of the countries that have been identified as having markets that have outpaced the United States this year.
In January, Brazil, under President Jair Bolsonaro, passed a law to subsidize its coal industry at least until 2040, a policy that would phase out fossil fuel subsidies until 2027. ended up doing the opposite. The cost of coal increased by 10 percent from 2019. According to BP data.
Imports from Russia have increased even faster. Brazil is on pace to buy about $8.3 billion from the state this year, not counting the rising cost of oil and gas, Russia’s primary export, according to FactSet. It will increase by 46% from 2021 and the total cost of Russian imports for 2020 and 2021 will be equal.
The move against wheat barely affected Brazilian markets. The Bovespa stock index increased by 11 percent this year until Monday. As measured in local currency, a measure of the country’s debt has improved. They have increased by 12% so far.
But Thornburg’s Wilson said Brazil’s success could be deceiving.
“Some parts of the Brazilian market are recovering, especially areas that benefit from high interest rates like the banking sector,” Wilson said. Forbes. “Other sectors in Brazil, such as small and medium-sized companies, have decreased significantly. Many recent IPOs have been very low. Overall, Brazil seems to be doing well, but that is the result of large weights such as banks and commodity companies. I I don’t think this has much to do with Russia.”
It is a similar story in India under Prime Minister Narendra Modi. The cost of coal in 2021 increased by 8% compared to 2019. Trade with Russia, including imports and exports, totaled $11 billion in the first half of 2022, according to Denis Alipov, Russia’s ambassador to India. In 2021, the two countries traded only 13.6 billion dollars. If all goes according to plan, it won’t stop there. The goal of the two countries is to do business worth 30 billion dollars annually by 2025.
Indian stocks have gained about 4% this year, even as its bond market has crashed and lost 10%.
However, compared to the US, India is the winner. The S&P 500 is down 19 percent this year, while the tech-heavy Nasdaq has lost nearly a third of its value. Meanwhile, Bloomberg’s U.S. Composite Index, a broad measure of public and private debt, continues to have its worst year on record. It dropped to 15 percent.
Of course, there are other factors. For example, Brazil is a commodity exporter and has reaped windfall gains as soybean and oil prices have risen.
As for India, Thornburg’s Wilson said access to cheap Russian crude oil is only part of the country’s success story.
“India is benefiting from cheap crude oil, but there are a lot of positive things going on there as well,” Wilson said. Forbes. “The retail investor has become a big part of the market as a result of Modi’s reform agenda.”
Changing things with Russia and blowing smoke is not a sure ticket to happiness. China increased its coal consumption and trade with Russia as its stocks collapsed. Of course, this is due to China’s conflicts with Western governments.
“I know why no one is talking about it,” Gave told MacroVoices. “Because this is the most politically incorrect thing you can talk about, you know, say, hey, I’m going to invest in guys who are friendly with Russia and burn coal. That’s a surefire way to not get invited to next week’s dinner party.”