'Energy trades at a discounted valuation and remains our preferred cyclical overweight. We also recommend investors own mining stocks, which are levered to China growth through rising metals prices,' the investment bank stated in a note to clients.
Crude prices remain highly volatile, partially due to the effects of gamma hedging.The energy sector is the cheapest of all 11 U.S. market sectors, with a current PE ratio of just 5.7.
The oil markets remain highly volatile, but continue to have little forward momentum, with WTI prices resuming their negative trading to move away from the pivotal $71.55 resistance level, pointing to renewed expectations of declines in the upcoming sessions. According to Standard Chartered, the extreme volatility being witnessed in the oil markets is due to effects, with banks selling oil to manage their side of options as prices fall through the strike prices of oil producers put options and volatility increases.
The negative price effect has been exacerbated because the main cliff-face of producer puts currently occupies a narrow price range. While gamma hedging effects do not trigger the initial price fall, they result in a short-term undershoot, further magnified by the closing out of associated less committed speculative longs.According to Wall Street investment bank , there’s still a path to $100 oil with the oil permabull predicting a supply crunch will help turn the markets around.
. But the surprising finding is that energy stocks remain real cheap, both by absolute and historical standards.. In comparison, the next cheapest sector is Basic Materials with a PE valuation of 11.3 while Financials is third cheapest at a PE value of 12.4 . For some perspective, the
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