GAM Investments’ Jian Shi Cortesi, Investment Director, Asia / China Growth Equities discusses the investment opportunities she believes ‘clean wave’-related industries could offer investors in the region.
In China’s latest five-year plan (2021-2025) there is a large emphasis on sustainable development fitting into the longer-term goal of achieving carbon neutrality by 2060. What this implies is that clean energy must go from a peripheral source of energy to the predominant source of energy for the country over the coming decades. This feeds into our positive outlook and view that the sector offers significant growth across multiple industries including electric vehicles (EVs) and clean energy, as well as other sectors related to environmental protection in Asia and China. The pursuit of ‘clean’ could not only be an environmental win but also a business win for China, with the country already a leader in the supply chain of solar, wind and EVs.
Chart 1: Top-selling light duty plug-in electric vehicle global markets
(Cumulative sales through December 2020 by country / region)
The wave of growth in clean energy technology and related industries offers many ESG-friendly investment opportunities in Asia and China, in our view. This in turn offers a fertile ground for investment in the future leaders of the clean energy revolution. For example, China is a leading producer of solar equipment. If you buy solar panels, they are likely to have been made in China. China is also the largest market for solar, with a cumulative installed capacity of 35% of the global market. Solar capacity in China increased between 2010 and 2018 at a compound annual growth rate of more than 90%.
In addition, China is the world’s largest wind power market, representing 44% and 37% of global onshore and offshore wind capacity respectively. Xinjiang Goldwind and Longyuan power are two of our preferred names in this sector: Goldwind is an equipment producer of turbines and wind power generation sets, Longyuan not only manufactures equipment for wind, thermal, tidal and solar power generation but is also a wind farm operator.
Outside of clean energy, we believe other related areas could offer attractive investment opportunities such as hydropower, water protection and treatment as well as waste management.
We also like the ‘clean green’ theme in the auto industry where China is currently home to 73% of global lithium cell manufacturing capacity. Korea is also of interest in this area as it is a leading producer of EV batteries. Geely Automotive, a traditional Chinese auto manufacturer of both passenger cars and auto parts, has recently launched an EV domestically and is the owner of the well-known UK-based London Electric Vehicle Company (LEVC) which produces the distinctive London black cab. Nio, another electric car and parts manufacturer, also provides charging services and is involved in the growing Formula E motorsport championship.
In terms of our outlook, the ‘clean’ theme remains strong. We have reduced positions in some companies especially in the auto sector, following strong performance and valuations that became overstretched. Instead we have increased our exposure to wind turbine producers, wind power generators and more traditional automobile makers who are developing strong EV offerings and have the potential to benefit from the growth in clean energy.
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is not a reliable indicator of future results or current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented and are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. There is no guarantee that forecasts will be realised.