Aberdeen Standard Investments Ltd., BNP Paribas Asset Management, and Pictet Asset Management, among others, believe that the summit’s outcome could trigger a green rally as the United States has re-entered the global climate change debate, while countries such as China, Japan and South Korea has set new emission targets.
Asian green stocks rallied after Joe Biden became president. He hinted at an increase in green investment. In 2021, the FTSE Asia Pacific Environmental Opportunity Index lags behind the broader MSCI Asia Pacific Index by more than six percentage points.
“Given the pullback in this sector in the first quarter, this is an interesting opportunity as stocks are falling at a time when macroeconomic conditions are improving,” said Edward Lees, portfolio manager at BNP Paribas. “When viewed alongside other global statements made in connection with Earth Day, it is clear that the structural trend towards greening the economy remains unchanged.”
The euphoria surrounding green stocks after Biden’s election was replaced earlier this year by concerns about overvalued prices and a general rethinking of the so-called reflation trading, of which they were a key component.
After countries pledged again to tackle climate change and take action to meet the Paris Agreement targets, investors seem to be taking an interest in these stocks again.
“While valuations always have to be justified, and investor enthusiasm sometimes leads to over-rallying of stocks, there is a long-term trend that is certainly positive for many green stocks,” said Will Malcolm, portfolio manager at Aviva Investors.
Asia – a source of renewable energy
Typically, climate plans in Asia focus on the renewable energy supply chain, from utility providers to decarbonization technology manufacturers, as well as electric vehicle suppliers, including batteries and automakers, whose shares are mostly listed on Chinese, Japanese and Korean stock exchanges.
The initial effect of the summit was positive. Chinese brands in the wind and solar sectors rallied on Friday, while coal stocks fell as Chairman Xi Jinping reaffirmed his commitment to carbon neutrality in the country by 2060 and pledged to cut coal consumption from 2026. However, some of these stocks have lost some of their positions amid a weak start this week in the Chinese market.
Japanese stocks including energy optimization service providers SDS Holdings Co. and eRex Co., which generate electricity from biomass, surged after the country announced plans to cut greenhouse gas emissions by 46% by 2030 compared to 2013.
According to BloombergNEF, investors appear to be particularly interested in Asian solar-related stocks, which are dominated by Chinese manufacturers such as LONGi Green Energy Technology Co. and US registered JinkoSolar Holding Co.
Ken Xu, chief investment officer at Strategic Vision Investment Ltd., believes that players such as Xinyi Solar Holdings Ltd. and Flat Glass Group Co., “will continue to gain market share” thanks to technological advantages and lower manufacturing costs.