Energy and Mines

Financial Newspaper – Santiago

Russia’s invasion of Ukraine has upset the World Order in force since the end of the Cold War, more than 30 years ago, with ramifications that overlap the profound effects of the pandemic and an impact that will reverberate for decades to come in ways that cannot yet be predicted, he said. BlackRock Chairman and CEO Larry Fink in his annual letter to shareholders.

“The Russian invasion of Ukraine has put an end to the globalization that we have lived through for the last three decades,” said BlackRock’s chief executive, the largest investment fund manager in the world, which closed 2021 with a volume of assets under management of US$10 trillion.

“We have already seen connectivity between nations, businesses and even individuals strained by two years of the pandemic. It has left many communities and people feeling isolated and looking inward. I think this has exacerbated the polarization and extremist behavior that we are seeing in society. current,” he added.

Fink recalled that the invasion has catalyzed nations and governments to come together to sever financial and commercial ties with Russia. Capital markets, financial institutions and companies have gone even further than the sanctions imposed by the government, he added. BlackRock has joined, suspending the purchase of Russian securities in its portfolios.

“These actions taken by the private sector demonstrate the power of capital markets: how markets can provide capital to those who work constructively within the system and how quickly they can deny it to those who operate outside it,” he said in the letter.

“Russia has been essentially cut off from global capital markets, demonstrating the commitment of leading companies to operate in a manner consistent with core values. This “economic war” shows what we can achieve when companiessupported by their interest groups, unite once morest violence and aggression,” it added in the 10-page document.

The CEO indicated in the letter that the invasion of Ukraine and Russia’s subsequent disengagement from the global economy will prompt companies and governments around the world to reassess their dependencies and re-examine their manufacturing and assembly lines, something the pandemic of Covid-19 had already prompted many to start doing.

Energy transition and cryptocurrencies

And while dependence on Russian energy is in the spotlight, he commented, companies and governments will also look more broadly at their dependence on other nations. “This may lead companies to conduct more operations in their territories or near their shores, resulting in faster withdrawal from some countries. Others, such as Mexico, Brazil, the United States or manufacturing centers in Southeast Asia, might benefit,” he added.

Fink also estimated that although Russia’s invasion of Ukraine will “inevitably slow” the global shift to green energy and move towards net-zero transition in the immediate term, it will accelerate the use of renewable energy sources in the long term. “During the pandemic, we saw how a crisis can act as a catalyst for innovation,” she said.

On digital currencies, Fink said the war will cause countries to reconsider their reliance on traditional money and payment systems. “A carefully designed global digital payment system can improve the settlement of international transactions while reducing the risk of money laundering and corruption,” Fink said.

In a sign of the growing importance of digital currencies, Fink said that BlackRock is now looking into how these and stablecoins can be used to help their clients.s.

Despite the fact that uncertainty generates risk aversion, experts assure that temporary moments, such as those experienced today with the conflict in Ukraine and the proximity to the presidential elections, can generate investment opportunities.

“Where there is uncertainty and risk, there is profitability. If you want to have a profitable portfolio, you have to take risks,” noted Andrés Moreno, a financial and stock market analyst.

Experts consulted by LR assured that global uncertainty causes some assets to drop in price, which creates an opportunity in the market to buy cheap. While the electoral uncertainty helps the assets have atypical prices that can be taken advantage of.

“The devaluations end up being opportunities, we are going through a moment with the implications that the increase in interest rates has to contain inflation, but business is business, and what becomes cheap due to this situation will be an opportunity purchase,” said Arnoldo Casas, director of investment at Credicorp Capital.

In addition to the above, investing becomes even more important considering that the prices of goods and services have registered an upward trend since last year, with which people have lost part of their purchasing power, that is, with the same amount of money cannot buy the same thing as a year ago.

In Colombia alone, inflation reached 8% annually in February and analysts expect the indicator to remain above the target range of the Banco de la República for the remainder of this year. In fact, the Issuer began the normalization of its monetary policy last year and the reference interest rate is already at 4%.

With this scenario, Alexander Ríos, director of the Inverxia financial education project, assured that it is key that people invest so that they cover their capital from the effect of inflation, in addition to having the possibility of generating returns above the indicator.

“It is important to understand that our savings are not going to generate returns by themselves, neither under the mattress nor in a bank account. In the society in which we live, where economies are highly sensitive to external shocks, inflation is the first enemy savings,” said the expert.

And then, what to invest in? Although you can opt for assets that generate returns tied to inflation, Ríos recommends looking for options that generate higher returns, yes, taking into account the level of risk aversion of each person. In addition, he suggests doing it with the advice of experts.

“In inflationary environments like the one we live in, our duty as savers is to look for better alternatives: there are stocks, high and medium risk bonds, Colombian and international ETFs, indices, raw materials… There are many instruments that people can use, at your fingertips, to structure your own portfolio, seeking better returns that mitigate the impact on the saver’s pocket,” Ríos noted.

Additionally, Moreno assures that in the colombian bag there are business opportunities, because the shares are not overvalued.

“In the case of the Colombian Stock Exchange, the shares are not overvalued, if it were not for the uncertainty we would have a much lower dollar and much higher shares. Some people are believing that, but we need the electoral uncertainty not to be become a problem, that is, those people who risk in uncertainty can also lose money, but if they don’t, they lose it and if they leave the risk play in favor, they can earn great returns,” he said, and pointed out that “then it is worth the It is worth diversifying portfolios despite the current situation, especially in countries that are not overvalued, such as Colombia.

The arrival of the Public Acquisition Offers (OPA) proposed by Jaime Gilinski have brought greater liquidity to the stock market and movements in the Msci Colcap index. This indicator measures the movement of the most liquid shares of the Colombian Stock Exchange.

Due, Nutresa and Sura they have been losing participation in said meter due to a drop in the number of shares available in the stock market. In fact, a recent report by Grupo Bancolombia shows that the insurance company would go from position nine to ten, with a 3.1% share in the index. Nutresa would remain the same with an interference of 4.2%.

However, the arrival of a new round of takeover bids on the market would lead to the exit of Inversiones Suramericana from the Msci Colombia index for failing to comply with the minimum size parameters, measured from the float-adjusted market capitalization. This might imply sales flows by foreigners, the amount of which is unknown to date.

“Depending on the acceptances reached and whether or not the acquisition limits are released by the bidders, the reduction in the float might become such that, effectively, the shares would cross the minimum limit to be in the Colcap and, consequently, they would come out of it,” the document reads.

According to calculations, this would happen only if the float of the companies were reduced below 5%. If one or both stocks leave the index, it will most likely remain with less than 25 species until the rebalancing in November. Once once more, once these operations are completed, and if the change in floats exceeds 5%, a new extraordinary event might take place by Msci to adjust the weightings.

For Valeria Álvarez, equity strategist for Itaú Comisionista de Bolsa, the company’s stock would return to its previous levels.

“Even so, this behavior will also depend on the moves made by the management. I do not see an exit from the Msci Colcap in the future as viable due to the new traction of issuers”, added the expert.