The Reason I Was Thrilled to Write This Report: I love the intellectual stimulation of writing investment reports. When I write the reports, I organize my thoughts; find facts that confirm, update, or destroy beliefs I have or had; and learn facts that interest me and may be used in the report I am working on or future reports. I also like writing reports when / if my predictions turn out to be correct. As Niels Bohr, a Nobel-Prize-winning physicist, said, “Prediction is very difficult, especially if it’s about the future.” Whenever I am right, I smile on the inside and often on the outside. But sometimes, in addition to the intellectual stimulation and the realization that my predictions were correct, I get happy because I have cheered for the protagonists of my reports to achieve something very difficult or almost impossible. This report is in this category.
I am thrilled that the stock markets of the European countries rebounded in line with my 2022 expectations, or actually, regardless of my expectations. I am happy they performed strongly in the first two months of 2023. You have got to respect countries – their political leaders and businesses – that worked so hard to improve their difficult situation. In the wake of Russia’s invasion of Ukraine and the economic sanctions imposed on Russia, the European countries found themselves in great need of replacing energy imports from Russia with imports from other countries. In 2021 before Russia invaded Ukraine, for example, Germany received 55% of its natural gas from Russia. [1] Many European leaders – namely German Chancellor Olaf Scholz – worked around the clock on organizing the construction of a new Liquefied Natural Gas (LNG) import facility in Germany and sourcing the gas imports for it. They have achieved a feat that was considered impossible. The accomplishment’s magnitude and speed can be judged by the title of The Wall Street Journal’s article “The Five-Year Engineering Feat Germany Pulled Off in Months.” [2] Now Germany is building four more floating LNG import facilities and is planning to develop one or several more permanent onshore LNG facilities. [3]
Germany has not been the only country that started building or planning the construction of LNG facilities due to the Russian attack on Ukraine. There are two terminals under construction in Finland. [4] According to the European Commission 2022 data, LNG facilities expansions or construction of entirely new facilities is planned in Belgium (1 facility), Estonia (1), France (2), Greece (2), Ireland (2), Italy (1), Latvia (1), Netherlands (1), Spain (5), Sweden (1), Poland (1), Portugal (1), and the United Kingdom (2). [5]
I want to emphasize that the excellent leadership of European countries should not be taken for granted. Often, governments cause crises or exacerbate them with their faulty policies or neglect, leaving it for businesses to fend off for themselves. But some crises can be resolved only at the government level. The European countries’ transition from reliance on Russian natural gas imports to imports from other sources is one of these crises. That is why I cheered for the European countries seeing the tireless work of their political leaders.
While working at Beyond Borders Investment Strategies (BBIS), I have seen a fair share of crises handled poorly. We often invest in stock markets of crisis-stricken countries, which often trade at low valuations compared to their historical averages. We aim to help countries recover from crises and earn attractive returns for our clients as stock market valuations increase to the historical average levels or even above them as crises pass. By investing in countries via single-country ETFs, we quickly infuse capital into stocks of all large and medium-sized public companies. We contribute to arresting dramatic stock price falls – that crises often result in – stock market prices bottoming and even rebounding. The stock price bottoming and rebounding make layoffs and high unemployment – which can dramatically worsen crises – less likely.
Without the government’s leadership, companies do what they can, often contributing to high unemployment that exacerbates crises. As the corporations’ stock prices plummet due to severe macro crises that often have nothing to do with the corporations, their managers are often willing to cut costs and increase stock prices by closing facilities and implementing major employee layoffs. The top corporate managers want the stock prices to go up, often at any cost, for several reasons. Stock prices are barometers of the overall health of corporations. High stock prices allow companies to raise more capital, making them likelier to acquire other companies than to be acquired. Finally, CEOs’ and top managers’ compensation packages are often positively correlated with their company’s stock prices via stock options and other incentive structures. The higher the stock price, the higher the top managers’ compensation. As everybody, CEOs respond to incentives put in front of them.
When country governments are not working on resolving crises – or even make them worse by passing anti-business laws or regulations or using many policies that have been discredited historically but keep coming back in the country after the country – CEOs of corporations may use their ‘nuclear buttons’ of cutting company investments to increase their companies’ stock prices. They cut costs by closing offices and plants and laying off employees en masse to stop the stock price declines. According to Forbes magazine, “Conventional wisdom for management is that layoffs are a necessary evil during economic downturns. Often, stock prices will rise in response to layoff announcements. However, in the long term, layoffs tend to lead to decreases in stock prices.” [6]
In this context, it was great to see that the European countries’ top politicians addressed the ‘macro’ crisis related to Europe transitioning from its reliance on Russian energy sources before the corporations started laying off their employees en masse. During the transition, the Euro Area unemployment declined rather than increased from 7.0% in December 2021 to 6.7% in January 2023. [7] Unemployment increases are much more often during crises. The January 2023 rate was the second lowest unemployment rate (after October 2022) since 1990. [8]
The Report’s Contents: This report is divided into the following six parts:
To read the full report, please Click Here
Please let me know if you want to:
Thank you for your attention, time, and consideration.
Best regards,
Vitaly
Vitaly Veksler, CFA
CEO & Portfolio Manager
Beyond Borders Investment Strategies, LLC
vveksler@bbistrategies.com
[1] Georgi Kantchev, The Wall Street Journal, “The Five-Year Engineering Feat Germany Pulled Off in Months,” December 9, 2022.
[2] Ibid.
[3] Rachel Waldholz, Benjamin Wehrmann, and Julian Wettengel, “Clean Energy Wire, “Ukraine War Pushes Germany to Build LNG Terminals, February 15, 2023.
[4] Ibid. The exact source is the European LNG Infrastructure Map Based on the European Commission 2022 Data incorporated in the article.
[5] Ibid.
[6] Q.ai - a Forbes Company, Forbes, “Intel Layoffs: Will Intel Stock Keep Going Up By Cutting Costs?” November 23, 2022.
[7] OECD, “Seasonally Adjusted Unemployment, All Persons.”
[8] Ibid.
I am thrilled that the stock markets of the European countries rebounded in line with my 2022 expectations, or actually, regardless of my expectations. I am happy they performed strongly in the first two months of 2023. You have got to respect countries – their political leaders and businesses – that worked so hard to improve their difficult situation. In the wake of Russia’s invasion of Ukraine and the economic sanctions imposed on Russia, the European countries found themselves in great need of replacing energy imports from Russia with imports from other countries. In 2021 before Russia invaded Ukraine, for example, Germany received 55% of its natural gas from Russia. [1] Many European leaders – namely German Chancellor Olaf Scholz – worked around the clock on organizing the construction of a new Liquefied Natural Gas (LNG) import facility in Germany and sourcing the gas imports for it. They have achieved a feat that was considered impossible. The accomplishment’s magnitude and speed can be judged by the title of The Wall Street Journal’s article “The Five-Year Engineering Feat Germany Pulled Off in Months.” [2] Now Germany is building four more floating LNG import facilities and is planning to develop one or several more permanent onshore LNG facilities. [3]
Germany has not been the only country that started building or planning the construction of LNG facilities due to the Russian attack on Ukraine. There are two terminals under construction in Finland. [4] According to the European Commission 2022 data, LNG facilities expansions or construction of entirely new facilities is planned in Belgium (1 facility), Estonia (1), France (2), Greece (2), Ireland (2), Italy (1), Latvia (1), Netherlands (1), Spain (5), Sweden (1), Poland (1), Portugal (1), and the United Kingdom (2). [5]
I want to emphasize that the excellent leadership of European countries should not be taken for granted. Often, governments cause crises or exacerbate them with their faulty policies or neglect, leaving it for businesses to fend off for themselves. But some crises can be resolved only at the government level. The European countries’ transition from reliance on Russian natural gas imports to imports from other sources is one of these crises. That is why I cheered for the European countries seeing the tireless work of their political leaders.
While working at Beyond Borders Investment Strategies (BBIS), I have seen a fair share of crises handled poorly. We often invest in stock markets of crisis-stricken countries, which often trade at low valuations compared to their historical averages. We aim to help countries recover from crises and earn attractive returns for our clients as stock market valuations increase to the historical average levels or even above them as crises pass. By investing in countries via single-country ETFs, we quickly infuse capital into stocks of all large and medium-sized public companies. We contribute to arresting dramatic stock price falls – that crises often result in – stock market prices bottoming and even rebounding. The stock price bottoming and rebounding make layoffs and high unemployment – which can dramatically worsen crises – less likely.
Without the government’s leadership, companies do what they can, often contributing to high unemployment that exacerbates crises. As the corporations’ stock prices plummet due to severe macro crises that often have nothing to do with the corporations, their managers are often willing to cut costs and increase stock prices by closing facilities and implementing major employee layoffs. The top corporate managers want the stock prices to go up, often at any cost, for several reasons. Stock prices are barometers of the overall health of corporations. High stock prices allow companies to raise more capital, making them likelier to acquire other companies than to be acquired. Finally, CEOs’ and top managers’ compensation packages are often positively correlated with their company’s stock prices via stock options and other incentive structures. The higher the stock price, the higher the top managers’ compensation. As everybody, CEOs respond to incentives put in front of them.
When country governments are not working on resolving crises – or even make them worse by passing anti-business laws or regulations or using many policies that have been discredited historically but keep coming back in the country after the country – CEOs of corporations may use their ‘nuclear buttons’ of cutting company investments to increase their companies’ stock prices. They cut costs by closing offices and plants and laying off employees en masse to stop the stock price declines. According to Forbes magazine, “Conventional wisdom for management is that layoffs are a necessary evil during economic downturns. Often, stock prices will rise in response to layoff announcements. However, in the long term, layoffs tend to lead to decreases in stock prices.” [6]
In this context, it was great to see that the European countries’ top politicians addressed the ‘macro’ crisis related to Europe transitioning from its reliance on Russian energy sources before the corporations started laying off their employees en masse. During the transition, the Euro Area unemployment declined rather than increased from 7.0% in December 2021 to 6.7% in January 2023. [7] Unemployment increases are much more often during crises. The January 2023 rate was the second lowest unemployment rate (after October 2022) since 1990. [8]
The Report’s Contents: This report is divided into the following six parts:
- Current Year-to-Date Performance Standings
- European Markets Surged in January 2023 After the 2022 Energy Gloom and Doom Did Not Turn into Reality
- Stock Markets’ Pullback in February 2023 as Investors’ Concerns Return
- Global and Regional Factors That Are Likely to Impact Stock Prices in 2023
- Country Selection Matter More than Country Categorization
- Welcome, Kuwait
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Please let me know if you want to:
- Invest with Beyond Borders Investment Strategies (BBIS) and help crisis-stricken countries and their residents recover from crises that destroy their well-being, dignity, health, families, and lives;
- Learn more about BBIS’ country investment analysis consulting services; and
- Ask questions about BBIS or the firm’s investment strategies or would like to be on our publication distribution list.
Thank you for your attention, time, and consideration.
Best regards,
Vitaly
Vitaly Veksler, CFA
CEO & Portfolio Manager
Beyond Borders Investment Strategies, LLC
vveksler@bbistrategies.com
[1] Georgi Kantchev, The Wall Street Journal, “The Five-Year Engineering Feat Germany Pulled Off in Months,” December 9, 2022.
[2] Ibid.
[3] Rachel Waldholz, Benjamin Wehrmann, and Julian Wettengel, “Clean Energy Wire, “Ukraine War Pushes Germany to Build LNG Terminals, February 15, 2023.
[4] Ibid. The exact source is the European LNG Infrastructure Map Based on the European Commission 2022 Data incorporated in the article.
[5] Ibid.
[6] Q.ai - a Forbes Company, Forbes, “Intel Layoffs: Will Intel Stock Keep Going Up By Cutting Costs?” November 23, 2022.
[7] OECD, “Seasonally Adjusted Unemployment, All Persons.”
[8] Ibid.
PERFORMANCE TABLES
TOTAL RETURNS = PRICE APPRECIATION + DIVIDEND YIELD
TOTAL RETURNS = PRICE APPRECIATION + DIVIDEND YIELD
Sources: Refinitiv, Beyond Borders Investment Strategies (BBIS). Used MSCI country index performance for 49 countries - all but the US. The US performance is represented by MSCI USA and S&P 500 indices. All performance series measure total returns of US Dollar-denominated indices.
Disclaimer: Opinions expressed in this report are of BBIS and are for information purposes only. This report does not represent investment advice. BBIS holds investment positions in single-country equity ETFs of some or all countries mentioned in the report. Past performance is no guarantee of future results.
Disclaimer: Opinions expressed in this report are of BBIS and are for information purposes only. This report does not represent investment advice. BBIS holds investment positions in single-country equity ETFs of some or all countries mentioned in the report. Past performance is no guarantee of future results.
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