Black Swan Risks Heading into 2016 [Chart]
SocGen’s latest evaluation still sees steep downside risk to market
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
Société Générale has come out with their most recent list of what the bank considers to be potential “black swans” to the market.
France’s third largest bank publishes this list as part of their Global Economic Outlook. As several users have pointed out in the past, we are indeed aware that black swans are by nature unlikely and extremely difficult to predict. We agree with this, but we do find SocGen’s list a useful way of understanding some of the upcoming risks in the market that could sway investor sentiment and opinion.
In the latest edition of the report, which was published this week, the bank still sees an excess of potential downside risks to the global economy. The greatest of these risks, slated at only a 10% probability but with maximum impact potential, is a new global recession. The report mentions as well that a hard landing in China could have similar effects.
Downside risks and their probability:
- 45% – Great Britain leaves the EU (Impact: low)
- 30% – China’s economy has a hard landing (Impact: high)
- 25% – U.S. consumers save more than expected (Impact: medium)
- 10% – Fed hikes too late (Impact: medium to high)
- 10% – New global recession (Impact: high)
Upside risks and their probability:
- 20% – Stronger investment and trade (Impact: medium to high)
- 15% – More fiscal accommodation (Impact: medium)
- 10% – Fast track reform (Impact: low)
One risk that could be added to the mix is some sort of a deflationary spiral. These are words that no central banker wants to hear, but signs of deflation are popping up all over the market. For example, as we showed in a recent chart, nearly all commodities got hammered over 2015.
The impact of such a spiral would be catastrophic, and the Fed has limited means to combat such an event. That said, it is tough to discern whether deflation will continue to be found sprinkled benignly throughout the economy, or if it could somehow snowball into the full-on death spiral.
Black swan indeed.
Ranked: The Largest Oil and Gas Companies in the World
Oil still makes up the largest share of the global energy mix. Here are the largest oil and gas companies by market cap in 2021.
The Largest Oil & Gas Companies in 2021
The pandemic brought strong headwinds for the oil and gas industry, and oil majors felt the blow.
Global primary energy consumption fell by 4.5% relative to 2019 and oil demand declined by 9%. For a brief period in April 2020, the price of West Texas Intermediate (WTI) crude futures went subzero, marking the largest one-day price plunge since 1983.
Some expected the demand crash to have a lasting impact on the industry, but it’s safe to say that 2021 has proved otherwise.
Oil Resurfaces as Energy Crisis Deepens
The world is facing a shortage of energy, and peak winter is yet to hit most parts of the globe.
Pandemic-induced supply restraints from producers, in addition to rising energy demand from recovering economies, have sent nations scrambling for petroleum products. Consequently, oil prices are resurfacing to pre-pandemic levels.
As of today, prices of WTI crude futures are at their highest levels in the last five years at over $80 per barrel. Furthermore, U.S. natural gas prices hit a 7-year high of $6.5 per million British thermal units (BTU) earlier this month. Elsewhere, European benchmark natural gas futures have surged 1,300% since May 2020.
Of course, the largest oil and gas companies are riding this wave of resurgence. Using data from CompaniesMarketCap.com, the above infographic ranks the top 20 oil and gas companies by market cap as of October 7, 2021.
Big Oil: The Largest Oil and Gas Companies by Market Cap
Given that we often see their logos at gas stations, the largest oil and gas companies are generally quite well-known. Here’s how they stack up by market cap:
|Rank||Company||Market Cap* (US$, billions)||Country|
|1||Saudi Aramco||$1,979||Saudi Arabia 🇸🇦|
|15||Duke Energy||$78.08||U.S. 🇺🇸|
|17||Southern Company||$66.64||U.S. 🇺🇸|
|20||Enterprise Products||$50.37||U.S. 🇺🇸|
*As of October 7, 2021.
Saudi Aramco is one of the five companies in the trillion-dollar club as the world’s third-largest company by market cap. Its market cap is nearly equivalent to the combined valuation of the other 19 companies on the list. But what makes this figure even more astounding is the fact that the company went public less than two years ago in December 2019.
However, the oil giant’s valuation doesn’t come out of the blue. Aramco was the world’s most profitable company in 2019, raking in $88 billion in net income. Apple took this title in 2020, but high oil prices could propel Aramco back to the top in 2021.
Although Standard Oil was split up a century ago, its legacy lives on today in the form of Big Oil. ExxonMobil and Chevron—the second and third-largest companies on the list—are direct descendants of Standard Oil. Furthermore, Shell and BP both acquired assets from Standard Oil’s original portfolio on the road to becoming global oil giants.
The geographical distribution of the largest oil and gas companies shows how global the industry is. The top 20 oil and gas companies come from 10 different countries. The U.S. hosts six of them, while four are headquartered in Russia. The other 10 are located in one of China, Brazil, Saudi Arabia, or Europe.
Big Oil, Bigger Emissions
Due to the nature of fossil fuels, the biggest oil and gas companies are also among the biggest greenhouse gas (GHG) emitters.
In fact, Saudi Aramco is the world’s largest corporate GHG emitter and accounts for over 4% of the entire world’s emissions since 1965. Chevron, Gazprom, ExxonMobil, BP, and several other oil giants join Aramco on the list of top 20 GHG emitters between 1965 and 2017.
Shifting towards a low-carbon future will undoubtedly require the world to rely less on fossil fuels. But completely shunning the oil and gas industry isn’t possible at the moment, as shown by the global energy crisis.
The World’s Biggest Real Estate Bubbles in 2021
According to UBS, there are nine real estate markets that are in bubble territory with prices rising to unsustainable levels.
Ranked: The World’s Biggest Real Estate Bubbles in 2021
Identifying real estate bubbles is a tricky business. After all, even though many of us “know a bubble when we see it”, we don’t have tangible proof of a bubble until it actually bursts.
And by then, it’s too late.
The map above, based on data from the Real Estate Bubble Index by UBS, serves as an early warning system, evaluating 25 global cities and scoring them based on their bubble risk.
Reading the Signs
Bubbles are hard to distinguish in real-time as investors must judge whether a market’s pricing accurately reflects what will happen in the future. Even so, there are some signs to watch out for.
As one example, a decoupling of prices from local incomes and rents is a common red flag. As well, imbalances in the real economy, such as excessive construction activity and lending can signal a bubble in the making.
With this in mind, which global markets are exhibiting the most bubble risk?
The Geography of Real Estate Bubbles
Europe is home to a number of cities that have extreme bubble risk, with Frankfurt topping the list this year. Germany’s financial hub has seen real home prices rise by 10% per year on average since 2016—the highest rate of all cities evaluated.
Two Canadian cities also find themselves in bubble territory: Toronto and Vancouver. In the former, nearly 30% of purchases in 2021 went to buyers with multiple properties, showing that real estate investment is alive and well. Despite efforts to cool down these hot urban markets, Canadian markets have rebounded and continued their march upward. In fact, over the past three decades, residential home prices in Canada grew at the fastest rates in the G7.
Despite civil unrest and unease over new policies, Hong Kong still has the second highest score in this index. Meanwhile, Dubai is listed as “undervalued” and is the only city in the index with a negative score. Residential prices have trended down for the past six years and are now down nearly 40% from 2014 levels.
Note: The Real Estate Bubble Index does not currently include cities in Mainland China.
Trending Ever Upward
Overheated markets are nothing new, though the COVID-19 pandemic has changed the dynamic of real estate markets.
For years, house price appreciation in city centers was all but guaranteed as construction boomed and people were eager to live an urban lifestyle. Remote work options and office downsizing is changing the value equation for many, and as a result, housing prices in non-urban areas increased faster than in cities for the first time since the 1990s.
Even so, these changing priorities haven’t deflated the real estate market in the world’s global cities. Below are growth rates for 2021 so far, and how that compares to the last five years.
Overall, prices have been trending upward almost everywhere. All but four of the cities above—Milan, Paris, New York, and San Francisco—have had positive growth year-on-year.
Even as real estate bubbles continue to grow, there is an element of uncertainty. Debt-to-income ratios continue to rise, and lending standards, which were relaxed during the pandemic, are tightening once again. Add in the societal shifts occurring right now, and predicting the future of these markets becomes more difficult.
In the short term, we may see what UBS calls “the era of urban outperformance” come to an end.
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