The Company NAV fell 6.2% over the month, whilst the MSCI AC Asia Pacific ex Japan Index (£) fell 3.5%, the FTSE Environmental Opportunities Asia Pacific ex Japan Index (EOAX) (£) fell 2.6% and the FTSE Environmental Opportunities Japan Index (EOJP) (£) rose 0.3%.
Global equity markets advanced in January as confidence in the sustainability of the economic recovery in the US increased and concerns about European sovereign debt issues reduced. In the Asian region a pickup in inflationary pressures led to a performance divergence. The Chinese, Indian and South East Asian markets suffered profit taking as investors anticipated further interest rate increases. Korea and Taiwan rallied in anticipation of rising exports driven by improving US demand. The Company NAV declined more than the indices due to the de-rating of the Indian market and profit taking in a number of waste-related and recycling stocks. In addition, the Company maintains an underweight in the solar sector which has outperformed in January.
Renewable Energy & Energy Efficiency: Energy efficiency stocks posted a mixed performance. Boer Power (power network efficiency, China) a recent IPO, rallied on the back of strong government support for corporate energy efficiency. SEMCO (industrial energy efficiency, Korea) advanced as investors looked through weak Q4 earnings and anticipated a recovery in LED profitability. In contrast to recent months, the portfolio's underweight position in solar module manufacturers detracted from performance, as clarifications of subsidy reductions resulted in performance spikes across the solar sector. Weak performance also came from renewable energy IPPs in South East Asia, as investors reduced exposure to these markets following a strong 2010, amid growing concerns about inflation.
Water Treatment and Pollution Control: IVRCL Infrastructure (water infrastructure, India), weighed on performance as it fell on concerns about rising interest rates, slowing order execution and a weakened balance sheet due to lengthening working capital. The exposure to the stock has been reduced.
Waste Technologies and Environmental Support Services: Positive performance came from China Metal Recycling (China) due to strong volume growth and announcements of M&A activity. Detractors to performance included Daiseki (hazardous waste management, Japan), SIMs (metal recycling, Australia), TPI (waste management, Australia) and Fook Woo (paper recycling, China) all of whom suffered profit taking following gains made in 2010.
An additional UN climate summit has been announced for April in Bangkok, to progress work on a Kyoto Protocol successor. In renewable energy, China is to tighten rules with power grid companies buying more electricity from renewable sources and the Philippines is working with the World Bank to design a globally acceptable feed-in-tariff for renewable projects. However, Taiwan is to cut solar tariffs by 30%, as installation equipment costs have fallen. In energy efficiency, India proposed an energy efficiency program for eight of its industries while China announced plans to upgrade and expand its power grids. In the water sector, China will introduce tougher conservation measures and spend approximately $3bn on water conservation between 2011 and 2015. China has also proposed to invest 10% of land transfer fees in rural irrigation reservoir upgrades, or approximately $31bn over this period. India will introduce a water policy framework by the end of the year, including guidelines on water allocation and groundwater conservation.
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