Stock Market Comment: Green stocks are gaining markets’ favour

• Climate-friendly stocks are drawing increased attention

• Governments increase their efforts to reduce carbon emissions

• iShares Global Clean Energy ETF (IHHQ.DE) with strong gains at the start of the year

• Green building may receive a boost amid increased climate change awareness

• Asset managers, like BlackRock, adopt eco-friendly investing policies

Investors are focused on the spread of coronavirus and it should not come as a surprise given what consequences it might have on the global economy. However, investors shouldn't distract themselves from underlying and emerging trends. Climate-friendly stocks are enjoying increased interest as of late and the situation may be set to continue amid efforts from governments and asset managers.

Governments strive to achieve carbon neutrality

Social awareness of the carbon footprint left by the global community is on the rise. Raging wildfires in Australia and melting glaciers remind people that unless we take action, the planet may suffer. Climate change may have severe implications for humanity in the long run, which is why governments are trying to fight the phenomenon. In order to stop climate change, countries around the world are adopting carbon-neutral policies. Germany, for example, plans to reduce carbon emissions to net zero by 2050. Moreover, countries are adopting regulations that are increasing costs for carbon dioxide emitters. The European Emissions Trading System is an example of such a measure. Investors can find CO2 emission contracts on xStation under the EMISS ticker.

Carbon dioxide emission contracts (EMISS) have been range trading recently. However, price threatens to break below the lower limit of the range at €23.50. Should it succeed, a retest of 2019 low at €22.00 could be on the cards. On the other hand, a lack of break below could encourage bulls to push the price back towards the resistance zone at 50% Fibo level (€26.00). Source: xStation5

Clean energy ETF on the rise

Polluters are falling out of society’s and market’s favour. Such a situation presents opportunities for shares of the so-called green stocks, like for example companies involved in renewable energy. Such companies can be found all around the world and picking a few leaders may be a hard task. Luckily, investors do not have to spend hours analysing each stock as they can utilise passive investment vehicles that track performance of the renewable energy sector. iShares Global Clean Energy ETF (IHHQ.DE) tracks 30 largest and most liquid public companies that operate in the clean energy business. This ETF is trading over 11% higher year-to-date.

iShares Global Clean Energy ETF (IHHQ.DE) enjoys strong gains at the beginning of 2020. The fund is trading 11% higher YTD and over 6% higher since the start of the month. The rally was halted near the 161.8% exterior retracement of the late-January downward correction but price looks to bounce higher once again. The next major resistance can be found at 261.8% retracement at 6.777. Source: xStation5

Opportunities abound outside clean energy sector

However, clean energy stocks are not the only ones that may benefit from the ongoing climate campaign. One of the most obvious green sectors is EV manufacturing, where Tesla (TSLA.US) is the leader. However, given a parabolic rise in share price of the US manufacturer, it may be better to look for opportunities elsewhere. “Green building” may be the way to go. It is an action of building constructions that are net emission free, and it has been gaining traction recently. Owens Corning (OC.US) and Rockwool International (ROCKB.DK) are examples of companies manufacturing materials needed for green building. Apart from that, investors may try to capture momentum in manufacturers of plant-based meat, like for example Beyond Meat (BYND.US). Plant-based meat is also said to be eco-friendly as decreasing animal stock limits greenhouse gas emissions.

Beyond Meat (BYND.US) surged at the start of the year gaining over 80% between January 6 and January 14. However, bears regained control later on and the stock started to trade in a descending triangle pattern with zone ranging $106.50-108.50 acting as lower limit. It is a bearish pattern, therefore a break above downward trendline is needed to make outlook more favourable. Source: xStation5

Asset managers embrace climate-friendly investing

Last but not least, another factor that advises to pay attention to climate-friendly stocks are the actions of major assets managers. Those are increasingly adopting investing policies focused on sustainability, including environmental sustainability. BlackRock, the world’s biggest asset manager that oversees portfolio worth $7.4 trillion, adopted such a policy. Given how much money companies like BlackRock oversee, channeling even a small portion of it towards eco-friendly investment could mean a big boost for those. This can be an opportunity and a thing that is worth keeping in mind when thinking of this new trend.