As crude oil prices remain elevated, a Nomura Securities strategist expressed the view that investors should avoid an excessive bias toward stocks with low sensitivity to market movements, and compiled the decline in RI, the economic outlook and a specific list of stocks.
Against the backdrop of a sharp rise in crude oil prices, Nomura Securities pointed out that the decline in the revision index (RI) may persist for an extended period. During periods when RI has declined substantially in the past, market volatility factors such as beta have sometimes turned negative, but it has expressed the view that heavily tilting toward low-beta stocks alone is not advisable at present. The current economic outlook is favorable, and higher crude oil prices are considered to reflect strong end demand. Continued high crude oil prices are expected to have a negative impact on bonds.
Looking at movements in US stocks and bonds before and after the First and Second Oil Shocks based on historical data, the analysis showed a tendency for bond prices to decline noticeably during periods of high crude oil prices. For equities, whether an economic slowdown develops into a recession is important. Even if accelerating inflation is anticipated, capital outflows from equities are limited when concern about the economy is not strong, and interest is expected to turn toward stocks with superior earnings as well as toward low-beta stocks on a relative basis.
As a market scenario if the period of high crude oil prices continues, the analysis indicated that beta-factor returns tend to be positive when crude oil prices rise or surge, while becoming sharply negative when crude oil prices plunge. It also expressed the view that even when supply constraints are considered severe, a prolonged period of high crude oil prices does not necessarily mean that risk-off sentiment will dominate, and that this is not a period premised on sustained risk-off conditions.
A list was also provided of stocks with neither excessively high nor excessively low sensitivity of equity returns to crude oil price movements, including their stock codes. The list included examples of stocks considered less susceptible to crude oil price trends, such as ニッスイ, 鹿島建設, 日本ハム, 協和キリン, アステラス製薬 and 三菱瓦斯化学.