Could The G20 Deliver A Growth and Clean Energy Pact?
It is becoming increasingly clear that the international
community fully recognizes the need to ensure that the global
economy does not become engulfed by another financial crisis at this
critical juncture. Developments with regard to the referendum
question in Greece and the fate of MF Global make this issue
particularly pressing. There is therefore significant rationale for
some kind of coordinated G20 action out of the coming Cannes Summit
on November 3-4th.
In
an article in early October, I argued that it was clearly
in the interests of countries like China to aid the work-out process
in Europe:
‘….At that point, any discussion of negotiations on a potential
deal on European debt at the G20 summit could help the market
higher. There is certainly room for such a development and my read
of the political tea leaves is that it may well involve a
significant commitment from China. If that looks likely to be the
case, it should again help the market towards a recovery…’
You can read the original article
a more detailed assessment of the rationale and likely path forward
That overall assessment looks generally to have been proven to be
correct, with China’s willingness to support the EFSF mechanism in
some manner now more or less clear (though any significantly
negative political developments in Greece could obviously put that
support on hold).
Interestingly, another reading of the political tea leaves suggests
that the G20 may well decide to announce a further coordinated
program – to convince the markets that they can act to sustain
global growth. This could involve:
How to judge the market’s likely response is difficult in the midst
of its confused reaction to both the MF Global and Greek referendum
issues. However, four points seem reasonable:
The bottom line is that the G20 member countries know that both the
global economy and the markets are at a critical juncture. They are
therefore likely to pull out all the stops in order to convince the
markets that they can prevent a financial crisis of global
proportions. And some stimulus from a push on clean energy is
entirely possible.
community fully recognizes the need to ensure that the global
economy does not become engulfed by another financial crisis at this
critical juncture. Developments with regard to the referendum
question in Greece and the fate of MF Global make this issue
particularly pressing. There is therefore significant rationale for
some kind of coordinated G20 action out of the coming Cannes Summit
on November 3-4th.
In
an article in early October, I argued that it was clearly
in the interests of countries like China to aid the work-out process
in Europe:
‘….At that point, any discussion of negotiations on a potential
deal on European debt at the G20 summit could help the market
higher. There is certainly room for such a development and my read
of the political tea leaves is that it may well involve a
significant commitment from China. If that looks likely to be the
case, it should again help the market towards a recovery…’
You can read the original article
a more detailed assessment of the rationale and likely path forward
That overall assessment looks generally to have been proven to be
correct, with China’s willingness to support the EFSF mechanism in
some manner now more or less clear (though any significantly
negative political developments in Greece could obviously put that
support on hold).
Interestingly, another reading of the political tea leaves suggests
that the G20 may well decide to announce a further coordinated
program – to convince the markets that they can act to sustain
global growth. This could involve:
- An overall stimulus commitment from a number of member
countries - and particularly those currently running
current account surpluses
- In particular, a deal on investment in clean energy (expect a
lot from Germany, China and Japan on this)
How to judge the market’s likely response is difficult in the midst
of its confused reaction to both the MF Global and Greek referendum
issues. However, four points seem reasonable:
- If the price action continues to be negative on the S&P
and the Euro going into the G20 an announcement of something
like the agreement discussed above (or initial talk about it)
could produce a decent dead cat bounce of significant
proportions at least. Both the SPY and FXE ETFS could bounce
sharply.
- We should also be getting further confirmation of the
commitment of China and other BRICs to the EFSF story.
- In clean energy, wind and solar and the like would get a
decent leg up. Solar has been destroyed in the last few months
and a basket of solar players could do very well on an
announcement such as that discussed above.
Solar (FSLR),
(SPWRA),
Power (STP) and
Green Energy (YGE) for example together look interesting
as an announcement play at current prices. Alternatively,
purchasing a
ETF such as
also makes sense. In wind, exposure to market bellwether
(VWDRY.PK) or simply
the best wind ETF probably makes most sense.
- In terms of electric vehicles, the most interesting play
remains
(TSLA). For a broader discussion see
The bottom line is that the G20 member countries know that both the
global economy and the markets are at a critical juncture. They are
therefore likely to pull out all the stops in order to convince the
markets that they can prevent a financial crisis of global
proportions. And some stimulus from a push on clean energy is
entirely possible.
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