While demand for oil and gas may rise, ESG investors, shareholders, governments and even customers are saying they are averse to companies adding to their supply, said Joe Overdevest, Fidelity’s Director of Research and Portfolio Manager.
“The world wants to go to carbon neutrality but the transition there could be messy,” Overdevest told a webcast Jan. 13 that presented the firm’s outlook for 2022 for Canada.
“Messy means that we may not get off oil and gas and get to electric grids with hydro power in a seamless fashion – we may not invest in oil and gas companies for a few years, but the oil demand continues at a decent pace before the electrification of these grids can happen and you could have higher oil prices.”
However, he said Canada is lucky in that it has a diverse market – from oil and gas to commodities, lumber and mines. But Overdevest said ESG-minded investors are delving into issues affecting areas like mining, particularly when it comes to copper and other base metals. Many people, for example, do not like the idea of cutting down a forest to make way for a mine.
Also big in Canada right now is the use of industrial real estate acting as big box storage centres to hold merchandise to counter supply shortage issues. Demand currently for these storage centres is taking place in Toronto, Vancouver, the outskirts of Calgary, as well as in Hamilton, and Guelph, Ontario. Some higher-end companies are now paying more to ship by air and simply charge customers to bring their products to them rather than face unknown delays by having their products sit in containers hundreds of kilometres away. However, Overdevest said companies like Dollarama and Walmart cannot afford to do that.
Top of the list of financial issues for Canadians this year is how quickly interest rates will rise. Markets, said Overdevest, don’t like uncertainty and issues that move quickly. “It’s the speed of how fast the rates go up that will worry the markets.”
In addition to interest rates, he said Canadians are concerned about how governments in other countries are preparing to respond to the pandemic and whether they will open up economically. He said investors should keep their eyes open for the best companies. “Great brands, great companies survive even in very tough times.”
