17/03/2011 - 00:00

Market makes its moves after carbon call

17/03/2011 - 00:00


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The market’s response to the planned carbon tax has been instructive.

A CARBON tax is bad for coal miners and good for companies promoting renewable energy, right?


A simple test of money flows shows that investors still prefer coal miners over renewable energy companies, with the share prices of coal stocks outperforming those for renewables over almost any time horizon.

The widest gap is over the longest time, which ought to be expected given the rush of money into most energy stocks over the past two years.

More interesting is the fact that, since the Australian government’s February 23 announcement of its plan to price carbon, the entire stock market has fallen – but a basket of renewable energy stocks, the theoretical beneficiaries of the anti-carbon policy, have fallen faster.

Tracking coal versus renewable energy has been a source of amusement for Bystander for some time, not for use in any ideological debate over climate change, but to see where investors are putting their money.

It’s been a bit like tracking the flow of bets to determine the favourite in a horse race, adopting the principle that professional punters know best.

On the stock market the professionals continue to embrace coal stocks and refuse to embrace renewables; and while it is impossible to say precisely why, the answer is almost certainly that one sector is a business while the other is a concept. Boiled down further – coal makes money, renewable energy does not.

For proof, consider what’s happened since February 23, the day Prime Minister Julia Gillard announced her plan to tax carbon.

In the three weeks after that announcement the Australian stock market, as measured by the all ordinaries index, fell 3 per cent, and seems to be heading lower as WA Business News goes to print.

Most coal stocks have also fallen, but some have risen, with the overall trend among coal miners healthier than the renewable stocks.

Aston Resources, the plaything of that freshly minted multi-millionaire Nathan Tinkler, rose from $8.80 on February 23 to $8.91 at the close on March 10 when Bystander ruled off this price-testing book.

Gloucester Coal rose from $11.30 to $11.64. Hunnu Coal rose from $1.18 to $1.36, and Riversdale, aided by a takeover struggle, rose from $15.15 to $15.61.

Coal stocks to fall included: Whitehaven, down from $6.68 to $6.65; Macarthur, down from $12.03 to $11.14; and New Hope, down from $4.85 to $4.67.

Meanwhile, over in the renewable sector, where solid rises might have been expected given the plan to introduce a carbon tax that favours companies promoting non-carbon energy sources, the stock market performance has been poor.

Geodynamics, a darling of the geothermal energy cheer squad, has fallen from 37 cents to 31.5 cents. Infigen Energy, a wind-power developer, has fallen from 46.5 cents to 34 cents. Dyesol, a solar-energy promoter, has fallen from 69.5 cents to 64.5 cents, and Quantum Energy, another solar-power stock, has fallen from 8.4 cents to 6 cents.

Winners in the renewables space can be found if you look hard enough. Energy Developments, a hydroelectric and waste conversion specialist, is up from $2.66 to $2.75, and Ceramic Fuel Cells is up from 12.5 cents to 13 cents.

Because the overall stock market has been destabilised by the rising oil prices and fears of military contagion in the Middle East, the past three weeks are a poor time to conduct a price performance test.

But it is also fair to say that, given the amount of publicity associated with the proposed carbon tax, it would be reasonable to expect the coal stocks to have been sold off and the renewable sector to have attracted buyers.

That has not happened, which means investors are not convinced that a carbon tax will be introduced in the form proposed, or at the suggested time of mid next year.

More importantly, investors are also not convinced that many of the renewable energy stocks have proved that they can make energy and a profit at the same time.

New home?

KNOWING that Australia has the highest priced housing in the world is a handy piece of information, but in a strict financial sense it is only telling an investor where not to buy – assuming the pecking-order table assembled by London’s Economist magazine is correct.

More interesting is to know which countries have the lowest-priced housing, because that might represent a ‘buy’ signal.

The obvious problem with this look at housing as an international investment is that very few people own houses in other countries, which in some cases wrap tight rules around foreign home ownership.

However, just for the sake of a theoretical investment exercise the place to buy a house today, because it appears to be the most undervalued market, is Japan where house prices are said to be 35 per cent below what they should be.

Given that Japan is a tricky housing market for foreigners, the next best countries might offer greater opportunity. Germany, for example, is said to be 12 per cent undervalued, and the US 7.7 per cent undervalued on a national basis.

Given the strength of the Australian dollar, and assuming you enjoy risky investments, now might not be a bad time to swap your house here for one in the US.

Putting it ‘out there’

FOLLOWERS of Paul Johnston, one of Britain’s more original thinkers, writers and editors, might be interested to learn about his latest theory on the future of China and why it is headed for trouble.

Never afraid to express his strong theological and philosophical views, the former editor of the New Statesman magazine reckons that rising personal wealth in China will boost the twin problems of gambling and drug addiction. Whether he’s right or not, Johnson deserves points for an interesting thought that has a lot of history on its side.

Quick as a flash

LAST week’s story on the dangers to financial markets of computer-driven share trading had a follow-up with reports that the ‘flash crash’ phenomenon appears to have been hitting the sugar, cotton, and other commodity markets.

Cotton trading on the Intercontinental Commodities Exchange is said to have been temporarily suspended on 14 out of 15 days in late February and early March. The sugar market dropped 6 per cent in a second on February 3.

Computers 1. People 0.


“When in doubt, tell the truth.”

Mark Twain



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