Nobody wants a crisis and everyone prepares for one, but for investors, crisis offer the ability to see the wheat from the chaff or quality from non quality. As an investor, you want to invest in quality stocks that can go through economic cycles, but when the rest of the industry group is suffering, as soon as that portion of the economy moves upward, your investments do better than the industry group. Much of investing is picking a company and then comparing it to how others did. If investing in S&P 500 index is running at plus 10% and you are in a fund with a high fee and averaging 5% return, is it a bad investment? Often times a crisis situation will allow you to reasonably quickly how did companies react to the crisis? In general, a crisis means everyone suffers, but some suffer less.

In an article by Ana Swanson of the New York Times News Service, the crisis of closing the shipping channels of the Strait of Hormuz sent energy prices up which meant that fertilizer and things made from oil and gas went up to. Around the world this caused inflation to rise.

In China, they have largely avoided the inflation spikes because China’s oil and gas reserves and clean energy projects have allowed it to avoid the worst effects of the closing of the Strait.

The consulting group The Asia Group, a Washington area-based consulting firm, examined the economies of Asia since the closing of the strait. One main takeaway is the crisis has demonstrated Beijing’s ability to use prices, export controls, subsidies and a managed currency to absorb shocks to the economy.

The crisis has accelerated growth for clean energy technology such as solar panels, batteries and EVs, industries that China dominates.

It is important to understand that China is dependent on the Middle East for energy and industrial products. Asia sources 80% of its oil and gas through the Strait of Hormuz. The war has impeded the production and movement of certain critical products such as naphtha, used to make plastics and chemicals; helium used to make semi-conductors and MRI machines and sulphur used to refine copper. The companies that use the materials are heavily dependent on the Middle East.

Overall, China drew down its energy reserves and imposed export restrictions and quotas on its oil refineries.

In India, rising prices for fertilizer, fuel and food have stoked political opposition to the government. Note 40% of India’s work force is employed in the agriculture related field.

In Japan, where fuel subsidies are equivalent to half the defense budget. Rising prices and shortages of aluminum and naphtha which are used in making auto parts have led to production cuts and delays for Japanese carmakers.

In Philippines, labor strikes and a declared national energy emergency was declared.

The issue is what happens next, many of the countries have used oil and gas reserves to buffer from the economic effects but those reserves are going down fast. In many capacities, from jet fuel to diesel oil, they are running low.

Linking to dividend paying stocks, hopefully you have bought quality stocks that can deliver profits wherever the economic cycle is located. In times of crisis, some stocks go up and others go down, and that can be a buying opportunity from your dividends. Try to buy the best of the breed at a discount. To do this you should keep a list of companies you wish to buy if the price is low. Crisis tends to offer opportunities, if you are prepared for them.

There are more questions than answers, till the next time – to raising questions.