NZ shares caught in global hunt for clean energy

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Renewable electricity stocks pushed the New Zealand sharemarket higher as global investors battled to buy shares in relatively scarce clean energy generators such as Meridian Energy.

Tuesday, December 8th 2020, 6:43PM 1 Comment

The S&P/NZX 50 Index rose 63.57 points, or 0.5 percent, to 12,719.59. Within the index, 26 stocks fell, 22 rose and two were unchanged. Turnover was $255.9 million.

Cancer diagnostics firm Pacific Edge has posted the biggest gain almost every day since Jarden predicted it could hit $1.40 in the next 12 months. Today was no exception as it rose 7.2 percent to 89 cents. 

Clean energy stocks led the way in market gains, however. Four of the next five biggest movers were renewable electricity generators — some of which are heavily weighted in offshore exchange traded funds.

Meridian jumped 3.9 percent to a record high $7 - well above what investors may expect to pay based on its earnings profile - as it has been bid up by overseas investors seeking clean energy funds following Joe Biden’s win in the US presidential election.   

“These passive exchange traded funds are just too big relative to the liquidity in the underlying security,” said Matt Goodson, a director at Salt Funds Management.

For example, the electricity generator is the fourth largest company in the $4.3 billion iShares Clean Energy ETF, despite having only a $15 billion market capitalisation which is still half owned by the government.

Mercury NZ also rose 3.9 percent to $6.72, while Contact Energy climbed 2.3 percent to $8.05.

Contact had better liquidity than the part-government owned generators and was therefore less effected, Goodson said. It is also excluded from some funds because it uses natural gas as one source of energy.

“At the moment there is a massive ESG (environmental, social, and corporate governance principles) push, not just in New Zealand but globally, and it has seen some of those names perform extremely well,” Goodson said.

“It is doubtless part of the reason Infratil is reviewing its shareholding in Tilt, which being a 100 percent renewable generator will be benefiting from the same trend.” 

The infrastructure investment firm announced yesterday it would consider selling its 65.5 percent stake in Tilt Renewables after being approached by several potential buyers.

Both stocks have been climbing since, Infratil rose 2.4 percent to $6.08 and Tilt was up another 4.8 percent to $4.77 today.

Genesis Energy - which still burns some fossil fuels - was up 1.5 percent at $3.40 today, but has been lagging behind the fully renewable stocks.

This relative underperformance was pressuring Genesis to clean up its generation to catch up with its peers, Goodson said.

“That’s why Genesis is reviewing its holding in the Kupe oil and gas field,” he said. “It is certainly a thematic that is starting to have real impact in the market.”

Travel booking firm Serko posted the day’s biggest fall, down 3.9 percent at $5.22. Air New Zealand also declined half a percent at $1.91, and Auckland International Airport dropped 0.6 percent.

Yesterday afternoon Prime Minister Jacinda Ardern was talking down any chance of reopening of the borders until most New Zealanders had been vaccinated in late 2021. 

The kiwi dollar was trading 70.32 US cents at 5pm in Wellington, down from 70.38 cents yesterday.

The trade-weighted index was at 73.71 at 5pm, from 73.74 yesterday. The kiwi traded at 94.71 Australian cents from 94.69 cents, 73.15 yen unchanged from yesterday, 58.03 euro cents from 58 cents, 52.63 British pence from 52.42 pence, and 4.5960 Chinese yuan from 4.5991 yuan.

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