In the Monday market update, we highlighted the large outperformance (4.88%) in Q1 of the INK Canadian Insider Index outperformance over the S&P/TSX Composite Index. What we did not point out was the INK CIN Index pulling ahead of the S&P 500 which it did last week. You have to look a lot closer to see the gap, a tiny 0.49% in favour of the INK CIN Index as of March 28th. The INK CIN Index subsequently widened its gap a bit against the S&P 500 on the first trading day in Q2.
The INK CIN Index widened its 2024 lead versus the S&P 500 on the first day of Q2
With the move being driven by oil & gas stocks, it reminds us of 2022 when the Index outperformed most broad market benchmarks globally in the aftermath of the start of the Russia-Ukraine War.
As Russia retreated from Kharkiv Oblast in fall of 2022, the Nasdaq 100 bottomed and began a powerful rally to set new all-time highs. However, the tide in the war may have turned again in favour of Russia which appears to be preparing for a spring offensive targeting Kharkiv again or possibly points further west.
Top performing INK CIN Index Stocks Q1 2024
1. Valeura Energy (VLE) +76.4%
2. Converge Technology* (CTS) +40.6%
3. TerraVest Industries* (TVK) +35.6%
4. Total Energy Services (TOT) +34.7%
5. MEG Energy ( MEG) +31.4%
*Entered the Index on February 16, 2024; returns are year-to-date.
While tides moving in and out during a conflict are nothing new, markets can still be impacted by changes in the geopolitical situation. At present, not only has the Russia-Ukraine battlefield situation likely moved from Ukraine spring offensive 2023 to Russian spring offensive 2024, but the Middle East is now more unstable that it has been in decades.
In terms of implication for markets, we can see how Russia would probably not mind a higher oil price in the lead up to November US elections as it would serve as a major headwind for Joe Biden's re-election chances. That does not mean oil will go higher, but it does increase the risk of it moving uncomfortably higher for western economies. Meanwhile, gold is the unintended winner from both conflicts as non-NATO block countries seek to diversify their reserves and global trade payment rails. Taken all together, Canadian resource-oriented stocks may be able to provide a hedge to the key geopolitical risks confronting investors today.
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