ALTERNATIVE ENERGY IS becoming an increasingly popular theme for investors. And now that China is scrambling to wean its booming economy off fossil fuels, the sector stands to attract even greater attention.
Under the landmark Renewable Energy Law that took force last year, Beijing aims to generate one fifth of the country’s energy requirements from alternative sources -- primarily hydroelectric, wind and solar -- by 2020. The new policy promises to give a strong boost to alternative energy companies and the funds that invest in them. According to the Worldwatch Institute, China accounted for $6 billion of the $38 billion invested in alternative sources of power generation last year; the country’s spending in this area is forecast to grow at a double-digit annual rate for the next decade.
The challenge for investors is finding a way to gain exposure to Chinese demand. “Access to the asset class can be limited, as the stock universe is quite small but growing,” says Sandra Lee, a Hong Kongbased managing director of Lyxor Asset Management, a subsidiary of France’s Société Générale.
Lee runs Lyxor’s $100 million Dynamic Alternative Energy Fund, which is invested in about 20 stocks. Only one is Chinese -- Suntech Power Holdings Co., the world’s largest maker of photovoltaic cells. The company posted a 148 percent rise in revenues in the second quarter of this year, to $317.4 million, and a 56 percent increase in net income, to $41.3 million. Suntech’s New York Stock Exchangelisted shares soared 126 percent during the past 12 months, to stand at $58.89 at the end of October.
Guinness Atkinson Asset Management launched its Alternative Energy Fund in 2006. The fund, which normally invests in companies with a market capitalization of at least $100 million that derive at least half of their revenue from alternative energy products, has just under 5 percent of its $135 million in assets in Chinese stocks.
One of those is Jetion Holdings, a solar-cell manufacturer based in Jiangsu Province. Guinness Atkinson’s Alternative Energy Fund bought a $2.3 million stake in July when Jetion listed its shares in an initial public offering on the London Stock Exchange’s Alternative Investment Market for smaller growth companies. The shares were trading at 115 pence ($2.39) at the end of last month, down from the IPO price of 151 pence. Fund managers met with management in September and remain committed to the stock, despite the 23.8 percent slide in the share price, says Matthew Page, who co-manages the fund. “We feel comfortable with our position and have been continuing to buy the stock,” he explains. The Alternative Energy Fund was up 37.1 percent for the year through mid-October.
Many funds concentrate on investing in Western companies with exposure to China’s alternative energy market. Belgium-based KBC Asset Management’s Alternative Energy Fund, for example, has a major investment in Vestas Winds Systems, a Danish company that is the world’s biggest maker of wind turbines. Vestas has sold roughly 1,000 turbines in China and claims a 19 percent share of that market. The company opened its first manufacturing facility in China in June 2006 to produce turbine blades. KBC’s $825 billion Alternative Energy Fund was up 37.8 percent for the year as of November 1. The firm has three funds under its Eco umbrella -- the Alternative Energy Fund, a climate change fund and a water fund -- which combined have $3.4 billion in assets.
“Global energy demand is forecast to increase exponentially, particularly as emerging economies like China and India work to raise the standard of living for their people,” says KBC investment specialist Jean Ryan.
The Paris-based International Energy Agency predicts that global primary energy demand will grow by 50 percent by 2030, with more than 70 percent of the increase coming from developing countries. China alone will account for 30 percent of the additional demand, says Ryan.
The supply of Chinese stocks looks set to grow as well. Dragon Power, a Beijing-based company that generates power from biofuels, is reportedly preparing to issue an IPO on the Hong Kong market next year to raise $2 billion.
Andrew Pidden, chief investment officer of Singapore-based CLSA Capital Partners’ $113 million Clean Resources Asia fund, estimates that there are 450 companies with a combined market cap of more than $1 trillion that are focused on tackling Asia’s environmental problems, including its need for alternative energy sources.
“We think the universe of companies is pretty decent,” he says.
