"They have positioned themselves into market spaces where there...

"They have positioned themselves into market spaces where there are still lots of deals and liquidity - renewables and infrastructure, and their commodity segment which is the current major driver of profits across the group will continue to be very strong with $100 oil and high gas prices as clients and global markets using their hedging products."

Starting with the commodity trading profits, those are overwhelmingly what caused analysts to upgrade their earnings forecasts for MQG over the past 12 months, and resulted in the above-normal ROE.

Problem is, those aren't what I consider to be very good quality earnings because they are derived largely from MQG taking positions for its P-book. Which is fine when oil and gas prices are undergoing rapid increases, as they were doing in the 12-months to March, 2022, but a lot harder to repeat when prices stabilise or the rise at a more measured pace.

Ditto for commodity derivatives: their pricing is a function of the volatility of the underlying commodity price; the more movement in the oil price, the higher the gamma (which is what creates the wiggle room in which MQG's options writers effectively make their margin).

As for the propensity for deals in the infrastructure and renewables space, both are highly capital-intensive activities and tend to be funded with very high proportions of debt capital in order to get their ROEs up to acceptable levels.

Trouble is, while government spending on infrastructure and renewables is likely to remain intact, for the private sector the lack of access of ultra-cheap capital is going to present a significant headwind.

And for renewables, specifically, these are not just capital-intensive but also very energy-intensive undertakings and the cost of the energy-derived inputs (steel, cement, copper, carbon fibre, polysilicon) required to create that new renewable energy are today multiples higher than what they were just 12 months ago.

Capital goes where it gets treated well, and in the renewables manufacturing space, it is going to require product prices to rise most significantly, before capital gets treated well enough to go there, en masse.

I think the pain trade has only started in the renewables space.

You may not have seen the series of profit downgrades over the past 9 months from Europe's largest listed wind turbine manufacturers (Vestas Wind Systems [VWS.CO] and Siemens Gamesa Renewable Energy [SGRE.MC]):



https://uk.finance.yahoo.com/news/wind-turbine-makers-struggle-pricing-153455086.html

https://uk.finance.yahoo.com/news/wind-turbine-maker-vestas-cuts-064252497.html

https://uk.finance.yahoo.com/news/vestas-q3-below-expectations-lowers-071243573.html





"I am intrigued as to where you put your proceeds - cash or into other stocks?"

To avoid committing the cardinal sin of cross promotion , I'll tag you on the General thread....

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