Vaccines and going green: Why the market is making a comeback
Companies that are focused on contributing positive environmental and social benefits that tackle some of the world's biggest challenges (such as providing access to better education, supporting healthcare companies fund the production of vaccines, and becoming carbon neutral) have a history of providing above-average returns to investors.
With this in mind, the demand for ethical investments is skyrocketing, as investors are seeking out greener options for their portfolios.
Alongside this green thinking, the sharemarket has been making an enthusiastic comeback on the wings of global vaccine rollouts, a stronger than expected US earnings season, and net zero commitments being made a priority by governments and companies alike.
With all this to consider, there's a lot to cover in this month's key themes to look out for.
As the global economy strengthens, inflation concerns ease and the outlook for consumer confidence heads towards greener pastures, the sharemarket is looking seemingly optimistic.
The local market climbed to a record 13-month high last week. Despite a slight slip in volatility, the overall volatility index (which measures market fear) is at a 14-month low.
Another indicator of positive market sentiment is that the ASX200 is up roughly 4% in April, meaning the market is on track for it best gains in six months for two key reasons:
- Vaccine rollouts gaining pace in Australia (albeit at a slower pace compared to other countries)
- Australians over the age of 50 will be eligible for the AstraZeneca jab as of May 3 at respiratory clinics then from May 17 at participating general practices.
- A stronger than expected US earnings season
- Of the S&P500 companies that have reported earnings so far, most have been beating expectations - particularly communications and technology companies.
- US company profit growth is growing at its quickest pace in over ten years and earnings are expected to grow 25% in the quarter.
US equities are likely to rally 10% over the next year, according to market expectations, which is likely to support and influence the local market on a similar trajectory.
Biden begins climate crackdown
Speaking of the US - after rejoining the Paris Agreement and introducing a string of integrated climate change policies in January 2021, President Joe Biden just wrapped up a virtual climate change summit which brought together 40 world leaders - signifying the extent that environmental concerns will influence the political and financial spheres going forward.
Clean energy companies that focus on renewable energy and resources such as hydodgen and palladium will come into stronger focus as Biden pledged to slash emissions by 46% by 2030, up from the 26% which was promised in the Obama administration.
With many countries around the globe also agreeing to ambitious targets, there are sure to be meaningful implications for Australians on the horizon. This greener global outlook similarly indicates ESG investing themes are here to stay and that there's more upside in companies focusing on recarbonisation.
For opportunistic investors, consider the Palladium exchange traded product (ASX:ETPMPD) that gained 16% in March and 9% this month to date.
The ASX listed product, ETPMPD, invests in physical palladium - which thanks to a shortage has seen the precious metal soar 10% this month, hitting record prices and becoming the most valuable precious metal.
The demand for palladium will continue to remain strong given its positive benefits to the environment. Palladium helps to turn pollutants such as carbon monoxide into less harmful elements such as harmful nitrogen, carbon dioxide, and water vapor.
If you want to look at particular stock in palladium, you could consider Chalice Mining (ASX:CHN) which called its Julimar mine in Perth, "Australia's first major palladium discovery". You could also look at similar companies that mine palladium such as DevEx Resources (ASX:DEV) or Impact Minerals (ASX:IPT).
Committing to the net-zero carbon curb
Another approach to looking at climate-friendly investments is to consider companies focused on becoming carbon neutral - a topic which has been thrust into the limelight as of late. Contributing to this conversation was Prime Minister Scott Morrison announcing his net-zero carbon emissions target by 2050 on the government's to-do list in early February.
Fortescue Metals (ASX:FMG) for instance has announced they will become fully green over the next nine years. The group wants to be one of the biggest producers of green hydrogen and run its iron ore business off renewables, meaning they will cut coal use in their operations.
From a technical perspective, FMG shares recently formed an almost five-week uptrend, reflecting this pivot to becoming carbon neutral. Their share price further bolstered as iron ore prices more broadly rebound to a nine and a half year high supported by Chinese demand.
Investors looking to add some more ethical assets to their portfolios can also consider companies that deem themselves as socially responsible such as Monadelphous (ASX:MND), Downer EDI (ASX:DOW), or Sandfire Resources (ASX:SFR). Alternatively, if stock picking is not for you, you could consider the Climate Change Innovation ETF (ASX:ERTH)... all of which could benefit from ESG trends as the world looks to a greener future.
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