What do you believe in?
In Chinese zodiac lore, the Ox is a bit of a latecomer to the party, but goes on to overcome obstacles. In the Year of the Ox that started mid-February, we see that Asian governments are beginning to walk their recent green talk on climate action and will need to use clean technologies to achieve significant progress.
Europe is digesting it, the US has a renewed appetite for it, and now Asia is ruminating it: the green grass of the pastures of climate action. The three economic heavyweights China, Japan, and South Korea, plan to become carbon-neutral within a few decades. This stance is all the more meaningful given that Asia countries were hardly enthusiastic supporters of environmental initiatives. Unsurprisingly, this reversal has electrified the financial industry. Goldman Sachs, for example, estimates that China’s initiative to become carbon neutral by 2060 would require investments of 16 trillion US dollars1, which equals approximately USD 1.1 billion per day. The bank expects the transformation will be driven by renewable power, clean hydrogen, and carbon capture. Still, the world’s largest polluter2 will continue to increase the release of harmful gases into the atmosphere each year before breaking the trend around 2030. That, at least, is the plan.
While the current lunar year is still young, let’s focus on the Metal Ox, the variety associated with 2021. These creatures hold strong opinions, are disciplined and active, but also quick and decisive when opportunities arise, making the Metal Ox a natural favorite of active asset managers like us.
Speaking of Metal Ox: metal and metal products are key ingredients in Asia’s rise to industrial glory. Let’s look at some innovative manufacturers from the region that have the industrial scale and the knowledge to drive change in one of our focus areas, “clean energy infrastructure”. The companies we follow within this category fall into the renewables bracket.
One of them is Hong Kong-listed solar-panel industry supplier Xinyi Solar with its broad range of glass products. Following industry consolidation, the company commands a market share of around 30%. It is increasingly active in bifacial modules, which yield more power and are more durable than conventional panels.
Another leading Chinese company, ZTT, produces power transmission cables for utilities and grid operators. A longstanding supplier of products for deep-sea lines, the company should be able to capitalize on the growing popularity of offshore wind farms. ZTT also manufactures optical cables as well as solar and wind power equipment. Its business with companies installing roadside charging stations is also picking up, which takes us to the next category.
Beyond China, Samsung is one of the companies we have eyes on. Not for the South Korean giant’s smartphones, but its automotive prowess: Samsung SDI is a globally leading manufacturer of batteries for electric vehicles and electrical storage solutions, mostly in combination with renewable energy generation. Therefore, its batteries enable end-customers to reduce CO2 emissions significantly.
Across the Korean Straight, in the old Japanese capital of Kyoto, sits Nidec, another important supplier to the electric vehicle industry. The company is among the premier manufacturers of highly efficient electric motors for the automotive and industrial applications and, to a small extent, for applications in the fields of solar as well as wind power, desalinization and transport infrastructure.
This is just a short list of candidates for inclusion in a clean technology portfolio able to support and benefit from the greening of Asia. Given the rising popularity of this investment theme, we believe investors should behave like the Metal Ox: Take decisive action and add clean technology to their portfolio.
1. “Carbonomics. China Net Zero: The clean tech revolution”, Goldman Sachs Equity Research, January 20, 2021.
2. China accounts for 28% of global CO2 emissions, followed by the US (15%), India (7%), and Russia (5%), according to US-based Union of Concerned Scientists (data as of August 12, 2020) https://www.ucsusa.org/resources/each-countrys-share-co2-emissions