Gold, oil and house prices have, at different times, all been viewed as a one way bet by British investors, but the goldbugs hoping for a rebound have been disappointed for many years and those forecasting and end to soaring house prices are likewise none the richer.
Oil, as low as $27 a barrel in the January this year, has climbed to $50 a barrel recently and there has been much talk of a rebound for black gold, but action on climate change – like that we saw in the Paris Climate Change treaty – could be a serious rock in the road.
Saudi Arabia is a core part of the OPEC cartel – an organisation specifically formed to keep the oil price as high as possible (or to ensure an efficient supply to consumers if you believe their story) – so its decision to continue pumping oil at full whack even when stocks were high, demand was low, and the price of a barrel of the stuff was four times less than it was a year ago seems odd unless you consider the implications of a recent speech by Bank of England governor Mark Carney.
Addressing the insurance industry in September last year he said that climate change action could make vast reserves of oil, coal and gas “literally unburnable”.
Mr Carney was referring to research from Carbon Tracker, which suggests that it is increasingly likely that that the world’s fossil fuel reserves will eventually become worthless, leaving traditional energy companies with ‘stranded’ oil and coal reserves which – for regulatory or economic reasons – will never be recovered from the ground.
The agreement at the Paris Climate Change talks, where the world’s biggest polluters committed to restrict their emissions, makes this seem increasingly likely.
According to an Investment Week article published earlier this year, the Paris Climate Agreement establishes ‘for the first time a truly global mechanism to rein in climate change, and one that will be subject to further tightening through periodic reviews’.
This has major implications with obvious potential losers from these regulations (carbon intensive businesses) and some potential winners (low carbon alternatives and technologies that can be used to reduce greenhouse gas emissions).
Impax Asset Management, a specialist in clean energy, believes that the beneficiaries from the Paris talks will be businesses specialising in low-carbon goods and services and argue that the accord will generate ‘a tailwind for the environmental and resource efficiency markets’.
In the meantime, while there may be room for more upside in traditional energy stocks, it would do no harm to take a good look at long term portfolio positioning in this area.
Impax Environmental Markets, an investment trust which invests in growth businesses operating in industries which the manager expects to benefit from the transition toward a lower energy, cleaner and more efficient global economy. You can read our detailed profile of the trust here.
