T8 Energy Vision – Market update

Insights — August 2023

We share our latest observations on global asset markets in regard to T8 Energy Vision

The positive drivers of equity markets in July were a continuation of the previous month. Despite another interest rate hike by the US Federal Reserve in late July to slow the US economy and reduce inflationary pressures, the most sensitive sectors to economic growth outperformed again in July with cyclical companies (such as energy and materials) outperforming defensive stocks (utilities) and small cap companies beating large cap companies by 3% (both were a tailwind for T8 Energy Vision).

The performance of value stocks matched growth companies for a second consecutive month but were unable to close the gap on a year-to-date basis (lagging by as much as 25%).

A resilient US economy and investors pricing in a soft economic landing and the end of the US Federal Reserve’s hiking cycle continued to boost market sentiment alongside economic stimulus measures announced by China’s government. Hong Kong and China listed stocks rallied on the news, boosting the electric vehicle companies (such as Great Wall Motor and Niu Technologies held by T8 Energy Vision).

While the strong rally in world equities year-to-date has resulted in valuations looking stretched relative to history (especially large cap US companies), this is not the case among small and mid-cap companies within the universe of clean energy which look increasingly attractive relative to their high growth rates.

Against this backdrop, electric vehicles, hydrogen, independent power producers, energy storage technology, and biofuels advanced, while solar stocks (which are the largest allocation in T8 Energy Vision) pulled-back. High growth solar companies like Enphase Energy and SolarEdge Technologies (both constituents of the S&P 500) finished a second consecutive month in negative territory.