Hydrogen: the next big thing on the stock market?

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Over the past decade, the desire for electric vehicles has grown, so much so that rather than being a novelty they are now becoming mainstream. As a consequence, Australia's rare earth miners have benefited with lithium being the big winner. This decade, rather than focusing on battery technology, there has been a big push toward renewable energy sources and hydrogen is shaping up to be the next big thing that investors should be looking at.

The Australian Renewable Energy Agency (ARENA) reported that both the government and industry has undertaken a substantial amount of work in this area to quantify the opportunities in renewable hydrogen in Australia. As a result, they have set a goal for producers of hydrogen to be able to do so for under $2 a kilogram. Two weeks ago, Australian company Hysata announced that its new technology developed by scientists at the University of Wollongong could meet the government's target and that they can reach gigawatt scale hydrogen production capacity by 2025.

According to ARENA, demand for hydrogen exports from Australia could be more than 3 million tonnes each year by 2040, which could be worth up to $10 billion. We have already seen Fortescue Metals partner with the Queensland government to build the world's largest green hydrogen manufacturing facility. But they are not alone, as Wesfarmers wholly-owned subsidiary Coregas is involved in a large project in the La Trobe valley that would see them export liquified hydrogen. AGL has also entered this space and Origin Energy is looking to enter.

is hydrogen the next big thing in shares

Right now, I suspect we are just seeing the tip of the iceberg and that there will be more large companies entering this space. With many smaller players also entering the hydrogen space in Australia, I suspect we may also see mergers or acquisitions of these smaller companies over the coming years. We have already seen one merger between Real Energy and Strata X Energy to create the Pure Hydrogen Corporation with the stock rising more than 20% in the last month.

Investors would be wise to study up on green hydrogen and be on the lookout for the great investment opportunities that will definitely become available in this space.

The best and worst performing sectors this week

The best performing sectors include Materials and Information Technology up more than 2% followed by Industrials up more than 1%. The worst performing sectors include Energy down more than 2% followed by Utilities and Consumer Discretionary, which are both just in the green for the week.

The best performers in the S&P/ASX top 100 stocks include Magellan Financial group up more than 12% followed by Mineral Resources up more than 8% and Fortescue Metals up more than 7%. The worst performing stocks include James Hardy down more than 5% followed by Woodside Petroleum and Harvey Norman down more than 4%.

What's next for the Australian stock market

The All Ordinaries Index has again continued to rise with the current move up lasting 16 days and more than 7% so far. That said, this bullish momentum has slowed a little this week, so don't be surprised if we experience a few down days in the coming week. The Australian stock market is now well above the high of 7,646 points and less than 1.5% away from achieving its highest close ever.

While it is typical for investors to speculate on smaller cap stocks, this year that strategy hasn't really worked as the ASX top 20 has risen more than 3% and the ASX 50 is up more than 2%, while the Small Ordinaries Index is down more than 5%. I do believe this trend will continue, therefore, I would advise investors to stick to the top 50 stocks in the Australian market if they want to achieve some good profits.

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Dale Gillham is chief analyst for Wealth Within (AFSL 226347). He has an Advanced Diploma and Diploma of Share Trading and Investment and more than 25 years' experience in the financial services industry.

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