'Blue wave' U.S. election expectations trigger green stocks frenzy
From Ritvik Carvalho
LONDON (Reuters) - Growing expectations of a strong Democratic victory in the US election have led investors to buy renewable energy stocks, fueling the recent onslaught of the European Union's green investment budget was.
Reacting to expectations of trillions in household spending over the next few years, investors are sparking a "green wave" of investment that compares to the rapid rally in technology stocks.
While President Donald Trump is taking the United States out of the Paris Agreement to tackle climate change, Democrat Joe Biden, who wants to beat him in the November election, has promised to set a US target for net zero emissions by 2050.
BofA Global Research said in its weekly Flow report last week that the surge in Solar Exchange Traded Funds (ETFs) reflected investor expectations for a "blue wave" in the November 3rd election. Blue is the color of the Democratic Party versus Republican red.
The Invesco Solar ETF is up nearly 150% since the start of the year, almost double the index that tracks the FAANG + basket of tech giants that led this year's stock market boom.
Solar ETF outperforms technology giants: https://fingfx.thomsonreuters.com/gfx/mkt/jbyprxojope/Pasted%20image%201602509485190.png
The flashy moves reflect the bets that under a Biden presidency these stocks will do well given the candidate's green suggestions.
However, investors say they are also reflecting a long-term shift towards greener investing, driven by expectations that the economic recovery will be technology-driven and green.
"I've never seen the writing on the wall so clearly: the recovery will be green and digital," said Geraldine Sundstrom, fund manager at PIMCO.
Sundstrom said she was not positioning herself specifically for the US election but would use any jerky reaction as a buying opportunity to expand her green investing strategy.
"It's totally unusual in the sense that I've never come across anything in my career that has hundreds of billions - I think we can say trillions now - money going one way around the world."
Average of the US election polls: https://fingfx.thomsonreuters.com/gfx/mkt/qmyvmjmnxpr/Pasted%20image%201602510501935.png
Last week, solar and wind generator company Nextera surpassed the market value of oil giants Exxon Mobil and Chevron, which have topped the charts of most valuable energy companies for several decades.
NextEra overtakes oil giants in market capitalization: https://fingfx.thomsonreuters.com/gfx/mkt/dgkvljmgqvb/Pasted%20image%201602510852888.png
"The worst-case scenario for renewable energy over the next six months - especially from a valuation perspective - would be a Trump victory and retention of Republican control over the Senate," said Jordan Waldrep, portfolio manager for ECOZ TrueShares ESG Active Opportunities ETF.
However, Waldrep said the broader trend towards renewable energy will continue regardless of the election result.
The outperformance of European renewable energy companies also suggests that the rally will not only depend on the US election prospects.
Danish wind turbine maker Vestas is up 62% this year, while regional rival Siemens Gamesa is up 59%. A basket of European renewable energy stocks - which include these two - is up 68% since the start of the year.
Green wave not just an American story: https://fingfx.thomsonreuters.com/gfx/mkt/gjnvwlgenpw/Pasted%20image%201602511270168.png
(Reporting by Ritvik Carvalho; additional reporting by Elizabeth Howcroft in London; editing by Thyagaraju Adinarayan and Pravin Char)
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