What can you do during this particularly hot summer?
Even if growth slows down, the theme of energy transition has plenty to appeal to investors.
Squaring the circle
Growth in the global economy remains modest and, with rising interest rates, is set to slow in the US, Europe and Asia. Against this backdrop, equities in growth sectors should be good investments, but their valuations are already demanding. Admittedly, there are some value sectors that benefit from very attractive valuations, such as oil companies and banks, but these two sectors are experiencing structural problems over the long term.
What’s more, although most investors support responsible investment, the world is still very polarised on the subject, and not everyone agrees to subject their investments to sustainability constraints.
So is it possible to find an investment theme that combines growth with reasonable valuations? Can we find investments that will be attractive to both ESG and non-ESG supporters? The answer is YES, with companies involved in the much-touted energy transition.
A topic on which everyone agrees
This is a very cross-cutting theme, bringing together the main companies involved in the energy transition. It is not replicable through a specific index, which requires good active management. Let’s summarise the most important sub-themes that will be present over the next 30 years:
- Solar panel manufacturing, for large-scale operations or small rooftop installations. These investments include solar panels, inverters and batteries to store excess energy.
- Manufacture of wind turbines for onshore and offshore installations. In conjunction with these, rare earth metals and copper will be widely used.
- Nuclear power: Although nuclear power has its detractors, the fact remains that it is a continuous source of energy that compensates for the intermittent nature of solar and wind power generation and emits no CO2. A new group of mini-reactors should be available for industrial use by the end of the decade, which will increase demand for uranium.
- Electric vehicles and their value chain: car manufacturers, chargers, battery manufacturers, rare earth metal miners, copper miners.
- Energy savings, thanks to the use of better insulating materials and electrical equipment that optimises the energy consumed in households and businesses.
- Producers of hydrogen, which will be used to produce green steel, cement and ammonia. We need electrolysers and fuel cells. Hydrogen will also be used to produce ammonia for fertilisers and as fuel for ships.
- Carbon sequestration. In cases where it will be impossible to do without CO2-emitting fuels, carbon sequestration techniques will have to be used.
- Companies that invest more and more money in non-CO2 emitting energies, whether for new investments or to replace existing installations that pollute, will be favoured.
United we stand
This summer, the film “Oppenheimer” was one of the box-office hits. It shows how, when the scientific community works together towards a very specific goal, it manages to achieve it quickly. More recently, this was also the case with the “Warp Speed” project, which succeeded in obtaining 2 vaccines against Covid-19 in less than 9 months. Meeting the “energy transition” challenge will be possible thanks to the efforts of the global scientific community, supported by public and private investment.
In the meantime, we as investors have a wide range of themes and companies that make good investments at reasonable valuations and are capable of appealing to all groups of investors.
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