The green recovery: it's time to re-enter the market

The stock market rallied in July 2009, says Nicola Donnelly of Wheb Asset Management

We have probably not seen the end of market volatility, and the injection of £50bn in quantitative easing last month by the Bank of England has made investors worried that it knows something they don't.

However, the end of the second quarter has provided some good results as companies have cut costs and beat analysts' expectations. Challenges remain, but tenuous green shoots are looking more like saplings and the most recent rally looks sturdier.

The leaders of G8 countries are committed to a ‘green recovery' and astute investors will want to align their portfolios with areas that will benefit from this commitment.

The fiscal stimulus aimed specifically at green themes promised by governments around the world has grown from $478bn in May to $512bn at the end of July. The rate of capital deployment has varied from country to country: France aims to spend 75 per cent of the stimulus this year, whereas the US is taking a more gradual approach.

The US has only just announced guidelines for the Treasury grant programme that will allow solar, wind and other green energy developers to apply for $3bn in grants to cover up-front project costs. This is in addition to $6bn of loan guarantees.

The wave of supportive legislation also continues, and in July we saw China launch its ‘Golden Sun' programme to offer subsidies to solar power projects which have been hit by the slump in global demand. This will bring around $2.5bn of investment - just a first step for the Chinese.

One company set to benefit from support in both the US and China is Yingli, a Chinese solar company. It has recently announced plans to build a 100MW solar module production plant and is working to capture domestic business without taking on too much financial risk.

Yingli is well positioned at the moment because polysilicon prices have come down and the company will benefit in the longer term from its superior cost structure. It has also opened offices in the US to establish subsidiaries that will take advantage of improving conditions in the US solar market.

After a rally in stock market prices in July, valuations are looking reasonable and bargain hunters are having a tougher time. It remains important to invest in companies that will emerge stronger from the ashes of the credit crisis rather than risk being caught out by short-term spikes.

Inflows into funds are picking up. It is important to make sure your fund manager re-enters markets at the right time and in the right way.

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