Any UK Winners from Davos?

Potential UK stock gainers from the latest World Economic Forum (WEF) in Davos could be a surprise, given the focus on energy transition. But there is a good catch, anyway.

If Mild Recession, Why Did VCs Not Attend?

The big takeaway from the latest meeting of world leaders and the heads of the largest companies at Davos, Switzerland, is that things are better than initially thought. Although many expected economic headwinds, the consensus feeling, particularly among corporate executives, was that the global economy would most likely manage to avoid a recession. 

There are some important caveats to that forecast. Smaller companies, which often rely more on domestic markets and hire a larger share of new employees, weren't invited. Venture capital, and the startups they sponsored, avoided this year's meeting, possibly to conserve cash. There might be a bit of selection bias that companies facing significant challenges would be less willing to splash out at a high-end Swiss resort.

The Big Winners If Davos Inc is Right

In any case, if the prediction turns out to be true, it's ironic (given the WEF's green reputation) that the two potentially biggest winners on the FTSE 100 could be BP and Shell in the coming months. The executives in Davos were optimistic, particularly for China's reopening, which is expected to imply increased demand for crude, and support crude prices, especially during the Lunar year. This aligned with the IEA expecting crude demand to reach a new record in the coming months.

The WEF also has been keeping up with the changing dynamics in the energy market and has come around to providing some tentative support to nuclear development. Particularly as an alternative to Russian natural gas and petroleum. One of the leaders in that field in the UK is Rolls Royce, which is significantly advanced in developing new modular nuclear reactors. In fact, it was announced over the weekend that the US Nuclear Regulatory Agency approved the first modular reactor for Rolls Royce's partner, NuScale.

BP and Shell are among the biggest firms on FTSE, which could get a boost if crude prices increase on China's optimism. But both have similar price action and are expected to print matching moves. But Rolls Royce is at a critical junction.

Rolls Royce Eyes Sentiment Change

The share price of Rolls Royce has recently recovered half of the losses incurred from 150 on November '21 down to 65. Flipping the 50% Fibonacci (at 107) typically shifts long-term sentiment, in our case, from bearish to bullish. With a 5-wave impulse off the lows, pullbacks could be considered opportunities towards the higher Fibonaccis. The 117 and 132 swings are the golden pocket and 78.6% retracement. But prices better maintain the trend above the round 100 handle and the 97 support. Otherwise, 85 comes into the spotlight.

Source: Spreadex

Key takeaways

The WEF in Davos is over, and the global economy might avoid a recession. However, VCs did decide not to attend this year, possibly to conserve cash. The two potentially biggest winners from the WEF on the FTSE 100 could be BP and Shell, thanks to increased demand for crude oil from China. Rolls Royce is at a critical technical junction, however. With the US Nuclear Regulatory Agency approving the first modular reactor and some support from WEF, the stock's sentiment could shift to bullish.