Renewable energy will be an investment theme for the foreseeable future, and we are very attuned to some recent developments that have the potential to revolutionise energy production. The two areas we would highlight, both represented in the portfolio, are underground coal gasification and wide band photovoltaic cells. The former is not a new concept, but the first attempts over the last 50 years or so in Russia and the U.S. were dogged by (avoidable) environmental issues, and many people now ignore the possibilities. Yet it is now possible to safely burn coal deposits underground that are too thin and/or deep to mine conventionally with a minimum of capital expenditure or environmental risk but with a far greater overall efficiency than by any form of conventional mining. Like coal bed methane this is a sector » Read more: Renewables

Most Western Central Bankers, and virtually all private sector economists have now declared the recession over. Probably around three months late, but better than their forecasting record going into said recession.

Consensus growth for China in 2010 is now 9% plus. Most stocks in our universe are at or above pre-Lehman’s levels. A lot of respected (?) commentators are talking ‘V’shaped recoveries on the back of a rebound in inventories. Property markets appear to be stabilising in the West and moving sharply up to near record levels in parts of the East. Strategists are writing lengthy tomes about how it is now safe to ‘add beta’ to your portfolio and sell all the boring defensive stuff. Always best to leave the first 500% or so for someone else. We have heard of short memories in financial markets, but this is ridiculous. » Read more: Irrational exuberance

The speed at which China is addressing its voracious appetite for energy and dire environmental issues is not being given enough attention.

While the country has suffered a slow down in economic growth due to the global credit crisis the government has prioritised the development of wind energy as an area for major investment.  At the end of 2008 China’s installed wind capacity was 12,200MW.  Already, during the first half of 2009, China’s capacity is reported to have increased by over 10,000MW and by the end of 2009 will account for around one third of the world’s installed wind generating capacity and rank second behind the United States, surpassing Germany and Spain. » Read more: Chinese wind

The Auto industry has finally had some good news with some stunning figures for Chinese car sales – up over 40% YoY. Inventories in most Western markets are now back to normal (aided by Government funded scrapping schemes), a lot of US capacity has been permanently shut down, and the likes of BMW have actually had to increase production levels to meet demand.

While we remain agnostic about the valuations of most of the listed players, this is clearly good news for the component industry. In particular it is good news for Platinum, which we have been keen on since the price plunged on inventory liquidation last year. Car sales will move up gently, but production will rise sharply as some temporarily mothballed plants re-open. Inventories are non-existent, and most mines are still loss making meaning supply will not react quickly. A US-traded ETF is also in prospect, and if it acquires anything like the market share that its Gold focussed cousin did, the price moves could be spectacular. Still our favourite commodity…

The politicians in Canberra are probably as popular in Beijing at the moment as Gordon Ramsay is in Australian news studios. Having rebuffed the bid for Ozminerals’ Prominent Hill, they will also be held culpable in Chinese eyes for Rio’s (partially) commercially driven snub to Chinalco, which was then made much worse by the announcement of the Rio/BHP iron ore joint venture, neatly creating a duopoly from the prior three player market. The fig leaf covering this clear anti-competitive move is a commitment to keep marketing separate. We would not blame either the European competition authorities or their equivalent in China for hallucinating over squadrons of flying pigs before they took this commitment at face value. Yet the Chinese need minerals, and can’t afford to throw all the toys out of the pram and walk away. » Read more: China’s security on commodity supply

After five decades, the Institute for Financial Analysis has polled its members, who now no longer believe in efficient markets – or, more specifically, that share prices do not reflect all available information. Does this mean an end to the random use of Greek letters in financial jargon? What should a rational investor do without his trusty Capital Asset Pricing Model? Is the DCF dead? How can one function in these volatile times without a simplistic framework?

We view this apparent mass epiphany as arrant nonsense, verging on sacrilege. The world is awash with financial information, dispensed with formidable rapidity to a very wide audience by Bloomberg , Reuters, CNBC, email and even Twitter for those of a trendier persuasion. CEOs can’t scratch their nose without it being made public, and any informational advantage that an investor can claim is likely to be either fallacious or illegal. Where the academic fraternity has gone wrong is in assuming that all participants interpret new news in the same way. This has NEVER been the case, and it most certainly isn’t now. » Read more: Efficient market theory – RIP

Five years ago India had an election. There was a surprise victory for the Congress-led coalition over the BJP and the market fell 20% in a day. This marked the low and the market subsequently quadrupled over the next three and a half years. As it turned out the effect of having to accommodate some of the left-leaning coalition partners on economic policy was somewhere between immaterial and zero.

This week the election result caused a 20% move up in the market as Congress will be less beholden to minority coalition partners. Good news if you are a Congress MP looking for a plum job, but rather less obviously great news for investors. Indeed for the IT, pharmaceutical and other export orientated industries the result is an unambiguous negative as the 5% appreciation of the Rupee will decimate their earnings if this level of the currency is sustained. » Read more: India

Fixed asset investment figures for the first 5 months showed a 33% increase YoY. For May alone it was up 38% YoY. Within that real estate investment in May was up 12% versus a 6% improvement in April.  Despite these big numbers, the stimulus measures continue.

Auto numbers were up by a similar quantum YoY supporting evidence of renewed consumer confidence.

We have said before that China cannot save the world single handed but that it can save itself. The evidence appears supportive.

“I like Asia.  You don’t have to sell me the story but I’m going to wait until the next leg down before making any allocation”.  This has been the typical response over the last couple of months, as the snooty dismissal of the latest rally as nothing more than a bear market phenomenon with no legs has given way to sweaty desperation.  Yesterday, one investor even dusted off the old adage about “selling in May and going away” and used it as an excuse for prevarication.

Don’t get us wrong: as we said earlier this week, things look a little overcooked short term and as a result we have reduced our beta and raised a little cash.  But as to the next leg down?  Don’t expect it to be big (more Kate Moss than Usain Bolt) as there are too many out there who will not want to miss out a second time.

‘Reduce beta in May and go away’ may not have quite the lyrical simplicity of the original old market adage, but may well prove to be appropriate this year.  A quick perusal of the financial press this weekend could have been from a different planet compared to the doom and gloom of February. Now everyone is spotting green shoots and it is becoming consensual that there is some sort of recovery towards year-end. As you will know from our previous entries, we agree.

However, we think that the markets are starting to get a little carried away with these early signs of economic rebound. It was never going to be an ‘L’ shaped recovery, but neither will it be a ‘V’ . The rebound in industrial production is a statistical necessity after the complete stasis of the turn of the year, and it would be as wrong to extrapolate the recovery continuing to move in an uninterrupted fashion upwards as it was to assume the death spiral that was consensus a few months ago.  » Read more: Reducing beta in Asia but still money to be made