Gas/government intervention

The headlines are quite strong on today’s AFR, citing the energy policy developments from Friday.

Our take.

We are mostly free market, but always lurking in the background is a role for the benevolent central planner. They aren’t going to let natural resource endowments in highly unusual circumstances bankrupt pockets of industry, or stress households to the point of default (also lurking in the background is the mortgage market).

This particular policy of price caps is pretty material to the domestic proportion of the market, with price caps well below what producers would otherwise get, and so, listed producers are seeing some pain in their share prices today.

However, we think the general frame of “when prices are high, a long list of people line up to try and take your return, be it unions, government, competitors, you name it” applies, and that’s what we are seeing here.

As such, we countercyclically sold down most of our energy exposures, and remain happy with what modest exposures we do have. Global growth will wobble, thanks to tighter policy, and little shocks at the margin only reinforce that top down desire to maintain bets in small size.

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