GREEN LINING: Soaring geopolitical risks has driven a safe-haven rotation to USD, bonds, gold. Renewable equities have been a rare equity performer, a green ‘silver-lining’ to the volatility, as governments refocus on energy supply and $100 oil drives substitution. This is needed to reverse the prior sector weakness (chart). Valuations are high (c29x P/E ratio), sales forecasts flat, and earnings pressured, even if long-term positive case is clear.
PERFORMANCE: Solaredge (SEDG) was the best S&P 500 performer last month (+34%). Whilst global clean energy ETF ICLN is +11% the past month. Smart portfolio @RenewableEnergy +9%. Auto-heavy QCLN +4%. All beat the -3% S&P 500 price fall.
CHANGE: The Ukraine crisis has 3 renewable catalysts. 1) Focus on fuel security risks, and diversification needs, especially in Europe. 2) Faster government carbon transition plans, such as Germany’s 2 new LNG plants and accelerated 100% renewable target date. 3) $100+ oil incentivises renewables substitution and makes them more cost competitive.
MORE: Commodities are the Achilles heel of Russia’s relationship with the West. Russia pumps 10% of world oil supply, 40% Europe’s gas, and it funds 40% Russia government revenue. These exports have been largely carved-out from current sanctions. Worst-case escalation could see full energy sanctions, like imposed on Iran in 2019. This halved its production to c1.9m bpd, on export restrictions and maintenance difficulties.
All data, figures & charts are valid as of 01/03/2022