The selloff continued throughout January on the back of rising interest rates yet again. Rising rates have an outsize impact on pressuring growth assets like renewables, since cash flow profiles are pushed out.
The most notable event in January was the Powell press conference on January 26th which was probably one of the most important Fed meetings in recent memory. The market sessions started with the tech-heavy NASDAQ up significantly, only to get sold off during the Q&A session as each answer Powell gave was more hawkish than the previous one. [1]
The fed has two mandates - a strong labour market and stable price levels (meaning inflation). Since the current CPI numbers have surged, the fed must raise rates to curb this inflation. However, inflation is a lagging indicator, so the Fed response must be appropriate and very flexible to achieve a soft landing. [2]
The reasons for inflation are obvious - people in the US were directly handed cash and there was so much money injected into the system, increasing demand for goods as the disposable income of the average consumer increased drastically. This increase in demand for goods was further fuelled by Covid, and now Omicron, which has shifted consumption to goods even further because no one is spending money on services which have been shut down. [2]
On the supply side, we had numerous supply chain issues, the most recent being China's no-covid policy which has shut down entire ports. With both excess demand and lower supply, it’s no wonder we're seeing price levels increase. [3]
However, we do believe that omicron will be the end of covid as it moves from pandemic to endemic, and we'll see everything open back up. [4] This will shift demand from goods to services which will put a dampener on the demand side of the equation for goods. Additionally, we're seeing that people now must return to work because their level of disposable income is eroding. [5] There is now an epic supply response to alleviate bottleneck concerns. We do believe that inflation will ease and the Fed will raise rates and incorporate contractionary monetary policy in a flexible manner that will have a soft landing.
Macro Outlook
- The IEA issued a report at the end of November that stated 95% of all new electrical generating capacity over the next 5 years will be renewable. “This is equivalent to the current global power capacity of fossil fuels and nuclear combined,” the IEA said in the report. [6]
- Yet even then, the world will need to double the rate at which it adds renewable power in the next five years to remain on track to reach net zero in 2050. To keep pace with variable wind and solar power, energy storage will have to nearly double as well. The world can’t just add more renewable power—it has to replace existing fossil fuel plants as well.
- In the next five years, the IEA expects that the construction of new energy storage capacity will double. By 2026, the world will be able to store 12 TWh of electricity, enough to power New Zealand for about four months. [1]
- Global wind capacity additions increased more than 90% in 2020 and will continue to grow 50% faster than previous years. [7]
- Annual growth in China’s renewables market will slowdown following the expansion that resulted from developers rushing to complete projects before subsidy phase-outs. However, the rest of the world compensates for China’s slowdown and maintains the pace of renewables expansion. [8]
- Annual growth in China’s renewables market will slowdown following the expansion that resulted from developers rushing to complete projects before subsidy phase-outs. However, the rest of the world compensates for China’s slowdown and maintains the pace of renewables expansion. [9]
- Europe’s capacity growth accelerates thanks to further policy support and a booming corporate PPA market as PV costs continue to decline. [10]
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1M
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3M
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6M
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YTD
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12M
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SI
|
|
HANetf S&P Global Clean Energy Select HANzero™ UCITS ETF
|
-14.26%
|
-32.18%
|
-22.48%
|
-14.26%
|
NA
|
-28.59%
|
|
S&P Global Clean Energy Select
|
-14.22%
|
-32.17%
|
-22.69%
|
-14.22%
|
-42.23%
|
-28.46%
|
Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Source: Bloomberg / HANetf. Data as of 31/01/2022. Please note that all performance figures show net data.
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