Precious metals and FTSE companies have seen their share price rise, while ESG companies have performed well, too
by Bethan Rees
Despite global concerns over the economic outlook in the shadow of Covid-19, precious metals are “soaring to multi-year highs” according to Justina Vasquez and Elena Mazneva in a Bloomberg article. Both gold and silver have performed well, with gold futures surging to an almost nine-year peak and silver reaching its highest rate since 2014. This could be due to demand for haven assets amid Covid-19, they write.
Gold and silver are at the top of the Bloomberg Commodity Index this year as investors seek “insurance against further economic fallout”, amid low interest rates and easy monetary policies, which have strengthened “the appeal of non-interest-bearing assets”, they report. The added demand has increased holdings in exchange-traded funds backed by gold and silver to all-time highs, too. On 21 July, gold futures for August had risen 1.5% to settle at US$1,843.90 an ounce on the New York Comex, “the highest closing price for a most-active contract since September 2011”, Vasquez and Mazneva write.
Speaking about the increase in demand for silver trading, Daniel Ghali, commodities strategist at investment bank and financial services company TD Securities, is quoted in the article as saying that “we think the marginal unit of demand for silver is coming from the industrial metal side”.
For September 2020 delivery, silver futures had increased 6.8% to settle at US$21.557 on 21 July – the highest figure since March 2014. According to the writers, Citigroup Inc. reports that it forecasts silver prices increasing to US$25 in the next six to 12 months, “with the potential for US$30, based on the bank’s bull case”, Vasquez and Mazneva write.
Bloomberg article
ESG shining through
Companies with environmental, social, and governance (ESG) credentials have also performed well amid the Covid-19 pandemic, says Holly Black, editorial manager, EMEA, at Morningstar, in a video interview with Amsterdam-based Morningstar analyst Tancrede Fulop.
Fulop says European utilities, “which are positively exposed to energy transition, thanks to renewables and electrification of the economy”, are doing well in comparison to other areas of the market. Although its performance in the year to date is flat, it is still an improvement on the bond market, “which is down by around 10%”, he says, and the European energy sector is down by around 35%. Fulop says that the energy sector is negatively exposed to oil and gas.
The best-performing European utilities are companies with the highest exposures to renewables, he says, listing examples of companies such as Ørsted, Iberdrola, Enel or RWE. On the other hand, Centrica is the worst-performing European utility, which has the highest exposure to oil and gas production.
Companies that have handled the Covid-19 crisis well may have improved their ESG credentials, Black says. Fulop references the work of Sustainalytics, an independent provider of ESG and corporate governance research, which has analysed the contribution of the beer, wine and spirits sectors during the pandemic.
“These contributions mostly include the productions of hand sanitisers, guaranteeing no layoffs and assisting hotels, bar and restaurants with their lease obligations,” Fulop says. He also adds that Sustainalytics reports that this may have improved how the public perceives them and “these efforts might reduce the ESG risks for the companies, especially the environmental and social impact of their products and human capital”. Fulop gives two examples of such companies: Pernod Ricard and Heineken. Pernod Ricard produced hand sanitisers on a large scale using its distilleries, and the company has one of the best scores in managing human capital risk, he says. Heineken guaranteed no layoffs of employees this year, and it scores well on its management of the environmental and social impact of products, he concludes.
Morningstar video
Best FTSE forward
Meanwhile, in the UK, some FTSE companies have seen an increase in their share price, some as much as three-fold, from the lows hit in March 2020 when the Covid-19 lockdown began, reports Camilla Canocchi for This is Money.
The companies who have rebounded include Premier Foods, which has seen its shares rise by 345% since the FTSE All Share low point on 23 March. Canocchi writes: “The company, whose brands also include Sharwood’s, Bisto and Batchelors, has been well positioned to benefit from stockpiling and people cooking more at home during the lockdown.” Premier Foods was having a strong year pre-Covid-19, according to Richard Hunter, head of markets at Interactive Investor. Its shares were up 140% in the year to date. “The company has posted 11 consecutive quarters of UK growth, helped in part by a relaunch of Mr Kipling in 2018,” he’s quoted as saying.
Another company that has bounced back is biomedical and cyber security solutions provider BATM Advanced Communications, which has seen its share price rise 213% since March, and 300% in the year so far. This is due to the demand for its Covid-19 tests and ventilators, Canocchi writes.
Other companies that have seen a rise in share price are Tullow Oil (203% since March), William Hill (187% since March), and Halfords Group (187% since March), according to the data sourced from Interactive Investor.
However, Canocchi warns that “the large share price increases should be taken with a pinch of salt, as they are not necessarily indicative of a company having come out of the woods or that their financial position is healthy”. She continues: “They could have just been oversold in the crash, for instance – so these gains are no indication of future success.”
This is Money article
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