Alternative energy on top 10 list for 2010

2009-12-10

Bank of America-Merrill Lynch released this week its annual report which lists 10 investment themes to consider for next year. For 2010 You should look at: The high and rising public debt and budget deficits in many countries, rising taxes, alternative dividend policies (because of rising taxes), continued recovery in the financial sector, improved cash flows (leading to higher M & A activity and possibly higher dividends), higher growth in world GDP (4.4%), increased focus on consumption in emerging markets (from consumption in the U.S.), rising commodity prices, active management (more focus on stock picking) and alternative energy.

Why alternative energy? The report highlights four strong incentives for renewable energy that they believe will be strengthened during 2010:

Long-term trend. Renewable energy is often not competitive with conventional power from coal, oil and gas but is a strong long-term trend that will be reinforced in 2010

Rising oil prices. Bank of America-Merrill Lynch are predicting an oil price of $94/bbl at the end of 2010 to today's $76/bbl which will improve the competitiveness of renewable energy and lead to greater capital inflows in the sector. A strengthening of the oil price is primarily driven by three underlying factors: a continued recovery in global economy driving up demand, continued weak dollar and declining supply due to low investment in new capacity.

Demographic changes and increasing income. More and more people moving in developing countries moving in from rural to urban areas in search of better living standards. This trend is strong and implies that a growing middle class rises and more and more cities need to be built which greatly increases the demand for low fossil energy.

Large investments. Both countries and companies have over the last year declared that they will invest heavily in renewable energy, which further reinforces the perception that this is the next big mega-trend – which investors should be positioned against.

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