Putin sends commodity prices into orbit, are there switches afoot?

UPDATED 08/03/2022 09:40

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The relative volatility under the hood of the ASX is as high as I can recall with the geopolitical backdrop driving up commodity prices and the related stocks while most names associated with growth have come under ongoing significant pressure. MM called these moves in the resources stocks at the start of the year and portfolios were skewed accordingly, the question we again ask is should we be migrating further down the risk curve i.e. have things simply traveled too far too fast.

The last 24-hours have seen crude oil hit levels not seen since before the GFC but not all stocks have delivered the gains investors would have expected/hoped for e.g. Santos (STO) is only trading 4% above levels reached in mid-2021, there are a couple of reasons behind this particular disappointing performance:

The market didn’t embrace STO’s result last month dropping the stock over 12% in mid-February, Woodside (WPL) has undoubtedly become the market’s preferred stock in the sector at this point in time.
Many fund managers are being given more environmentally friendly investing mandates precluding stocks such as STO but this influence is extremely hard to quantify.
As is often the case some investors/traders will believe the rapid gains of the last few weeks are unsustainable e.g. perhaps the world will again start buying Iranian oil.

MM took profit on our STO holding last week as oil hit our target areas, the awful situation in Ukraine has propelled the energy complex significantly higher and STO has popped another 5%, obviously frustrating but we still believe in the phrase “plan your trade and trade you’re plan” although in our case it’s investing as opposed to trading.

At this stage, we remain long BHP Group (BHP) which will give us a position in Woodside Petroleum (WPL) in the coming months, if we are correct and this explosive move by oil is mature our plan is to accumulate WPL into a pullback taking our merger position to a more meaningful level. We have no current plans to take profit on our holding in BHP Group (BHP).