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Prepare for more unknowns

An oil price war, the global COVID-19 pandemic, increased political and trade frictions, and a number of climate-related events certainly made 2020 a year of unprecedented challenges for credit risk managers, who faced a series of high profile defaults and bankruptcies across sectors.
Key credit drivers included industry structure challenges, reduced growth trajectory, impaired operating efficiencies in certain sectors, regulatory focus shifts, reduced CapEx intensity, and limited financing availability. Substantial negative impacts on the energy, travel, leisure and hospitality sectors, while retail store weakness accelerated further in 2020. Many of these defaults resulted in lower recoveries for investors.

Lower oil and natural gas prices, brought on by an oil price war, and exacerbated by lower demand due to the Novel Coronavirus pandemic (COVID-19), adversely impacted energy companies, and market inefficiencies drove oil futures to negative price levels for the first time since records began. The energy sector accounted for nearly one out of five bankruptcies in the US in 2020.

Meanwhile, pandemic-related border closures caused air traffic to drop over 60% year-on-year, forcing the closure of many hotels and restaurants, as travel nearly came to a halt. Several airlines were rescued by their governments, while others failed.

As Baruch said "A speculator is a man who observes the future, and acts before it occurs" and if you will ask me about my opinion the next 5 years will be more difficult than previous and we should prepare to find conservative solutions in rapidly changing environment. An excellent way to hedge risks would be investments in agriculture, hydropower and train container transportation.