Green wave going strong in 2013 investment scene
Investors need to sniff out the winners and avoid the losers as governments worldwide become more aware of climate change issues
Going "green" will remain a strong investment theme in 2013 as governments in China, India and Europe continue to introduce regulations on environmental protection issues that will benefit some sectors while hurting polluters, say analysts.
Picking the winners and avoiding the losers as governments adopted policies on environmental protection and climate change issues would be key to successful investing in the new year, said Simon Webber, fund manager and global sector specialist at British fund house Schroders.
"Climate change will have large financial consequences for most companies," Webber said. "New energy regulations and standards are driving consumer awareness of home energy consumption."
European countries had already adopted carbon emission standards while governments in emerging markets such as China, India and Brazil as well as advanced markets like the United States were also implementing policies to require companies and individuals to cut carbon emissions and save energy. "Companies with fuel-efficient technologies will be well positioned to benefit from this trend," he said.
And as companies and individuals paid more attention to energy-saving and reducing fuel costs, online shopping would become popular, Webber added. "Online retailing incurs a much-reduced carbon footprint than traditional retailing. As such, online retailing companies like Amazon and eBay will be among the beneficiaries of rises in energy prices."
Similarly, companies that produce energy-saving lighting or household electronic products would also benefit from the growing green consciousness among consumers.
But being green would not be an automatic benefit to companies or sectors, Webber warned. "Low US gas prices are keeping renewable sources of energy uncompetitive for now. In addition, there is overcapacity in wind and solar energy and we will wait until there are signs of industry consolidation before we will turn positive on the outlook of this sector," he said.
The concept of climate change had driven investment decisions for some years already, said Paul Chan Pak-kui, Invesco's chief investment officer, Asia ex-Japan. "Information technology is one sector exposed to the 'climate change' investment theme, and technology has also played a significant role in the rise in productivity in the commodity sector for the past 20 years," he said.
Joseph Tong Tang, executive director of Sun Hung Kai Financial, said green-concept stocks might produce profits over the longer term, but he did not expect any major gains in the short term. "Stocks with a green concept may attract long-term institutional investors as the companies may only reap benefits from climate change over some years," he said. But since the stocks were not likely to offer quick profits, they would not be favoured by retail investors.
Mark Konyn, chief executive of Cathay Conning Asset Management, warned that climate change investment themes were fraught with difficulty and subject to the vagaries of government policy and subsidies.
"When subsidies apply, they can distort the supply-demand dynamic and result in less than commercial outcomes. An example is the global solar energy industry," Konyn said.
Fund managers were more likely to find value in understanding how conservation and concern for the environment affected consumption behaviour and industrial output, he added.