China green energy stocks clean up after Beijing crackdown

Shares in Chinese clean energy companies have rallied this month as investors bet the sector will benefit from continued government support and avoid the crackdown that has engulfed the technology sector.

Beijing’s moves to tighten regulatory scrutiny over key strategic sectors will benefit advanced manufacturing, localisation of technology and renewable energy — sectors that align with the government’s long term objectives, according to Morgan Stanley.

China’s CSI New Energy index has soared 55 per cent over the past three months, while Hong Kong’s Hang Seng Tech index — which contains China’s largest tech companies — has fallen 12 per cent during the same period, both in local currency terms.

A series of recent regulatory measures have knocked tens of billions of dollars off the valuations of some of the country’s biggest tech groups such as Alibaba and Tencent. China last week released a five-year plan to strengthen regulatory control over strategic sectors including technology and healthcare.

In this febrile atmosphere, investors need to be confident that companies’ primary business activities are aligned with the government’s long-term strategic goals, according to Templeton Emerging Markets Investment Trust.

“The intense regulatory activities . . . [are due to] Beijing’s determination to develop China into a ‘modernised socialist economy’, including objectives of common prosperity, green development and independence in key technologies and industries,” Templeton analysts wrote.

President Xi Jinping’s goal to achieve carbon neutrality by 2060 and a peak in carbon emissions by 2030 has kept investors positive about the clean energy sector.

“We prefer areas that stand to benefit from the global reopening and are less vulnerable to tighter regulation, including energy and greentech, along with consumer durables and services,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

China-based exchange traded funds focused on green energy themes outperformed other Chinese broad-based strategies in the first half of the year, according to Wind Info data.

“We are positive on the renewable energy sector, especially those in the supply chain of solar energy” as well as exposure to battery metal lithium, said Kai-Kong Chay, senior portfolio manager for Greater China Equities at Manulife in Hong Kong.

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