CNOOC (H-share) is a Hong Kong-listed HK$1.19 trillion ($191 billion) market capitalisation company that mainly engages in exploration, development, production and sale of crude oil and natural gas. CNOOC is the largest producer of offshore crude oil and natural gas in China and one of the world’s largest independent oil and gas exploration and production companies. The company derives nearly 80% of its revenue from crude oil and liquids, with the remainder from natural gas. As a result, revenue is sensitive to the realised sales prices of crude oil and natural gas.
Certain asset classes have negative correlations with one another, which investors can leverage for diversification when held together and appropriately allocated. One such correlation is between equities and commodities. Historically, we are experiencing higher-than-usual market volatility and uncertainty. At the same time, certain commodities have spiked upwards in price, namely gold and oil. Although it is possible to purchase these commodities directly or indirectly through futures and exchange-traded funds, buying shares in companies whose primary revenue and income come from these commodities can also provide good exposure to their upside potential and diversification benefits. Better still, buying shares in these companies’ equities allows investors to receive dividends if the companies choose to pay them. Since commodities are highly volatile, dividend payments can effectively reduce investment risk for individuals seeking exposure to the commodity market.
The company in focus is China National Offshore Oil Corporation (CNOOC). As the company’s name suggests, its financial performance is closely tied to the prices of oil and natural gas and serves as a proxy for exposure to the oil and natural gas commodity market. Historically, CNOOC has performed consistently well, except in 2020, when crude oil prices turned negative. Despite this, the company has paid regular, consistent dividends semiannually. CNOOC is suitable for investors who want to diversify into commodities while seeking regular dividends. Relative to the Hang Seng Index, CNOOC’s stock beta, which measures its volatility, has been below the market beta of 1. The company’s monthly one-year, three-year, five-year, and 10-year betas are 0.84, 0.41, 0.54, and 0.70, respectively. This implies that the stock is less volatile than the market, making it a safer option for investors.
