Monthly commentary - Mackenzie Greenchip Team

December 31, 2023

Key takeaways

The ‘Magnificent 7’ dominated performance in 2023 where they experienced average gains of approximately 70%.

Yet, for all but Nvidia, earnings estimate for 2023 for these companies are currently lower than what was expected more than a year ago.

In December, renewable energy sectors enjoyed a bounce off depressed levels.

Greenchip holding OCI, a globally diversified producer of nitrogen fertilizer products and methanol, announced two major sales of their Middle East / North Africa company, Fertiglobe, and of their relatively newly built Iowa ammonia plant, IFCO.

Macroeconomic recap

Global asset markets, and equities in particular, rounded out a remarkable year with a final month of gains in December. America, consumer tech, and the ‘Magnificent 7’ (Apple, Microsoft, Google, Amazon, Nvidia, Facebook and Tesla) absolutely dominated performance. These seven companies saw average gains of approximately 70%, adding in aggregate more than USD $5 trillion to their market value. And yet, for all but Nvidia, earnings estimates for 2023 for these companies are currently lower than what was expected more than a year ago. So, it was not so much fundamental improvements but rather speculation fed by easy money and lower interest rates, as well as AI hype, that drove these stocks to their historic 2023 gains. On the point of lower interest rates, while rates were raised through much of 2022 and 2023, investors and central banks are broadly hinting at—and pricing in—rate cuts next year, threatening to unleash further inflationary forces on global markets with major question marks around future supply. The biggest ongoing threat to global supply chains and inflation, geopolitical conflict and deglobalization, only grew during the year. The Ukraine war is arguably no closer to resolution and Russia appears to be winning; the Israeli-Arab conflict has seen Yemen threatening Red Sea / Suez shipping, fighting spread to Lebanon, and increased bellicose rhetoric from Iran. Broadly speaking, the lines between ‘the west’ and ‘the rest’ have only gotten clearer, with increasing cooperation between non-Western countries, led by China and the BRICS nations. Adding to this narrative was ongoing efforts to eliminate the dollar from various trade flows and by the successful effort to rapprochement and reopening of diplomatic ties between historic Middle Eastern enemies Saudi Arabia and Iran.

Current positioning and notable changes

Environmental sectors and the Mackenzie Greenchip Global Environmental All Cap Fund generally fared well in December, while renewable energy, industrial companies and the Fund significantly lagged the Magnificent 7-led broad index performance for the year. In December, renewable energy sectors enjoyed a bounce off depressed levels. New orders and better pricing for Vestas turbines drove optimism for better economics in wind.

Outlook

The hope for lower interest rates had some investors also anticipating a bottom in recently depressed solar residential rooftop installations. Greenchip holding OCI, a globally diversified producer of nitrogen fertilizer products and methanol, announced two major sales, of their Middle East / North Africa company, Fertiglobe, and of their relatively newly built Iowa ammonia plant, IFCO. Total proceeds, at over $7b, put the company in a strong net cash position which they intend to use to further their leading efforts in blue and green ammonia and green methanol for shipping fuel.

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