Net Zero Emissions: Investment Opportunities

Dale Gillham and Fil Tortevski

By Dale Gillham and Fil Tortevski |

With the Australian government acknowledging the significant challenge of achieving net zero emissions by 2035, and Vanguard, one of the world's largest fund managers, pulling out of the Net Zero Asset Managers initiative, it may be time to reassess investments in this sector. The situation is complicated, especially since Vanguard's main competitor, BlackRock, the largest fund manager, remains committed to its sustainable energy fund. This disparity underscores the ongoing debate about the feasibility and effectiveness of reaching net zero.

What investment opportunities exist in the energy sector?

For those optimistic about achieving net zero, Australia's renewable energy sector offers numerous investment opportunities. ETFs, such as the VanEck Global Clean Energy ETF or the BetaShares Climate Change Innovation ETF, can provide market exposure. However, it's important to note that both ETFs are currently trading near their all-time lows, having dropped around 40 per cent each from their listing price, with no clear signs of a price rebound yet.

Alternatively, investing directly in ASX listed companies involved in clean energy production might be a better approach. This strategy provides direct exposure to the alternative energy sector and allows you to own shares in specific companies. One notable example is Origin Energy. Origin has made significant strides in renewable energy projects, including large-scale battery energy storage systems and strategic partnerships to advance renewable energy technologies.

Turning to the share price, Origin has experienced a bullish run since May 2021, with the share price up over 160 per cent. In comparison, the clean energy ETFs I refer to above are still falling, a stark contrast that supports the idea of direct stock investment over ETF exposure.

That said, given Origin's strong performance since 2021, there is potential for the stock to temporarily pause in its upward momentum, especially as it is currently trading around a previous resistance level. Nonetheless, I encourage you to keep a close watch on the share price, as the stock is quite volatile and could present a buying opportunity very soon.

What were the best and worst-performing sectors last week?

The best-performing sectors included Utilities, up 4.21 per cent, followed by Financials, up 2.08 per cent and Health Care, up 1.92 per cent. The worst-performing sectors included Materials, down 1.08 per cent, followed by information technology, down 0.62 per cent and Industrials, down 0.24 per cent.

The best performing stocks in the ASX top 100 included Steadfast Group, up 9.46 per cent, followed by Sonic Healthcare, up 7.14 per cent and Pro Medicus, up 7.11 per cent. The worst-performing stocks included Mineral Resources down 10.60 per cent, followed by Liontown Resources, down 10.10 per cent, and Arcadium Lithium, down 8.64 per cent.

What's next for the Australian stock market?

Last week, the buyers regained control, pushing the All Ordinaries Index up by around half a per cent, while also continuing the recent pattern of weekly price reversals highlighted in my previous report. So, with the market still stuck sideways, the critical question now looming is: what will trigger an upward breakout from this sideways movement? The answer lies in the performance of individual sectors, in particular Financials and Materials.

These two sectors account for 50 per cent of the total market weighting for the All Ordinaries Index, meaning their influence on the overall market direction is substantial. If both sectors experience growth together, the market will rise. Conversely, if both are falling, the index will decline. But what happens if one is rising while the other is falling? Generally, the market moves sideways.

So far this year, the financials sector is up over 13 per cent, while the materials sector is down over 12 per cent, making it the worst-performing sector. Given its significant weighting, it's no surprise that the market is struggling to move higher. However, despite being the worst-performing sector, there is a silver lining for materials.

The sector is trading around a crucial support level, which has historically acted as a springboard for price rises. Since March 2023, each time the materials index has fallen to around 17,000 points—four times so far—it has rebounded. However, with the current price in freefall, holding above the 17,000 point level seems unlikely; therefore, if the index fails to maintain this level, we might see further declines in the short to medium term.

So, what does this mean for the broader market? If the materials sector continues to struggle, the overall market could remain stuck in a sideways pattern. However, if materials can find support and rally from here, it could be the catalyst for further growth in the All Ordinaries Index. Therefore, keep a close eye on the materials sector, as it is at a pivotal moment, with potential answers to the market's direction just around the corner depending on its reaction to the 17,000 support level.

For now, good luck and good trading.

Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the bestselling and award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online.

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