Zigzagging a path through recent trade friction and geopolitics has often been bewildering.Is market sentiment for the day”risk-on”or”risk-off? A Wall Street Journal article likened the”risk-on,risk-off”phenomenon to market forces being split into two buckets.One has”haven assets”that rally when investors”grow skittish.”The other has”growth assets”that rally as”risk appetite returns.”To state the obvious,commodities like oil are not risk-off or haven assets.And”skittish”is likely an understatement of energy investors’mood.A recent Simmons Energy note detected some”increased investor scrutiny in assessing risk/reward”in energy.However,it noted”the complexity factor has never been higher as multiple externalities continue to drive a wide range of outcomes.”According to the Simmons note,gener-alist investors have set a high bar to consider returning to energy.E&Ps’ability to generate a free-cash-flow(FCF)yield is a”threshold requirement,”and a FCF yield in line with that of the S&P is targeted.”Given the weak competitive structure of the upstream industry and the prolonged legacy of underperformance,”the Simmons note said,”generalists increasingly require minimum FCF yields of about 5% and a persuasive line of sight to low double digits.”
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