Renewable energy – divides long and short investor sentiment
The focus on clean and renewable energy has moved from cutting emissions to creating jobs and promoting economic growth reports The Financial Times. Can this statement by arguably limited to China? European and US government subsidies are designed to boost solar usage regardless of the providers or manufacturers, whilst Chinese subsidies are said to focus on helping the Chinese solar manufacturers. Even Germany, the leader in the global solar industry which consumed more than 50% of solar panels produced in 2010 is turning to Chinese suppliers, who offer the most competitive prices. We look at investor sentiment towards the leading global renewable energy stocks including; First Solar (NASDAQ:FSLR), Suntech Power Holdings (NYSE:STP), Q Cells (ETR:QCE), Renewable Energy Corp (OSL:REC), GT Solar International (NASDAQ:SOLR), Trina Solar Adr (NYSE:TSL)and Vestas Wind Systems (CPH:VWS).
According to data provided by the UN Environment Programme and New Energy Finance, Asia’s investment in clean energy, dominated by China, has grown rapidly. While other regions have contracted, Asia is set to eclipse Europe as the world leader. The FT reports that China has set itself tough energy efficiency targets and is providing fierce competition to the established US and European renewable energy companies. Yet US and European subsidy programmes for renewable energy are regarded by some as inconsistent and short term. When combined with the extremely long term investment horizons, which often take decades to deliver a return, we see investor sentiment towards these companies often being split between the long and short sides of the market.
Whilst the U.S. lodges a complaint that China wrongly boosted its economies, which Reuters speculates could launch into being a trade war, First Solar Inc are moving forward in delayed projects to penetrate the Chinese market. An increase in short interest from 13% to 21% of total shares outstanding on loan since August may indicate a lack of confidence in the U.S. leader. Conversely, long only funds who lend their stock, our proxy for institutional ownership, have increased their total holdings from 12 million to over 15 million shares, or 18% of total shares, over the same period.
Another U.S. company, GT Solar International, was reported as performing well when their share price reached a new 52 week high following news of receiving an order from Korean company Nexolon and Chinese Trina Solar. This questions the extent of rivalry with Chinese companies and may point to greater cooperation amongst international companies. Short investors remain sceptical and have increased their positions in GT Solar from 9% to 14% of total shares outstanding on loan since December. However, the long side again takes a contrasting view, with funds who lend almost doubling their holdings in the last six months to 27 million shares.
In Germany, old-timer Q-Cells is also shifting production to Asia to remain competitive. The shares have tumbled since Germany stopped its subsidies last summer. Short interest has jumped and currently stands at a staggering 40% of total shares outstanding on loan, with 80% of the lendable supply currently out on loan. Renewable Energy Corporation has also seen a build up of short interest from 4% to 10% of total shares since August, yet institutional ownership has increased over the same period from 55 million to almost 80 million shares.
Despite China’s commitment to renewable energy and positive news about Chinese companies, the short side of the market is yet to be convinced. Suntech Power Holdings Adr sees an increase in short interest since August from 4% to over 8% of total shares outstanding on loan. Institutional ownership has also fallen from 13 million to 8 million shares over this period. Trina Solar ADR (mentioned above) also sees an increase in short interest since December from 18% to 23% of total shares outstanding on loan. Short interest in Ying Li Green Energy Holdings has also increased since August from 6% to 10% of total shares outstanding on low but institutional ownership in this stock breaks the norm as it remains at a low of 10 million shares, having halved over the past year.
Short sellers remain sceptical towards wind energy stocks too. Short interest in Vestas Wind Systems continues to rise and currently stands at 12% of total shares. Yet long only investors remain committed and have raised their stake to 24% of total shares. The outlook is harsher for Nordex Se which sees short interest rising to 8% of total shares, while long only investors have reduced their stake by 1 million shares to 3 million shares.
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