According to Saxo Bank’s Q1 2020 Quarterly Outlook, shifts into greener investments carry high risk, with cyclical sectors such as solar, wind and EVs likely to be more heavily impacted in a recession.
Green stocks have significant potential, but investors should carefully weigh up their investments.
Steen Jakobsen, chief economist and CIO at Saxo Bank, believes “for the first time since WWII, we sense a shift in which climate and the environment – not growth – will become the priority of governments and their citizens, as shortages of food, clean water and air become existential questions”.
Despite the risks, Peter Garnry, head of equity strategy, believes there is an opportunity for investors through green stocks.
Governments will increase investments and subsidies for “green” industries, starting a new mega trend in equity markets.
“Green stocks could, over time, become some of the world’s most valuable companies – even eclipsing the current technology monopolies as regulation accelerates during the coming decade. Investors should consider tilting their portfolios towards green stocks so they don’t miss this long-term opportunity,” Mr Garnry said.
As climate consciousness fuels public acceptance for more active fiscal and monetary policy, they see the foundations for the implementation of a massive monetary and fiscal climate package and political change being laid by the European Central Bank in 2020.
This shift should be reinforced by national governments as climate change influences political choices – as a result, they also think that Germany turning green will be the main political game changer in the coming years.
Christopher Dembik, head of macroeconomic analysis, said: “Contrary to what has happened over the past 10 years, central banks cannot be the only player in town to fight climate change. Governments will need to step in – and the current evolution of the yield curve is creating a very attractive environment for fiscal stimulus oriented to fund green projects.”
Finally, Saxo Bank believes as investors go green, traditional commodity assets could face a volatile 2020, given the combination of growth concerns, geopolitical tensions, climate change and inflationary pressures.
Saxo Bank’s head of commodity strategy noted: “While demand for key cyclical commodities remains weak, we see the supply side also facing multiple challenges due to social unrest and climate change.”
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