2 months ago • 1 min
What’s going on here?
High interest rates have been anything but groovy for renewable energy companies.
What does this mean?
The S&P Global Clean Energy Index measures how the thirty biggest renewable energy companies are doing, and right now, they could be holding up a whole lot better. Down just over 20% from only two months ago, the index looks like it’s headed for its worst year in the last decade. That’s probably because major green energy firms lock in prices way ahead of time with long-term contracts, which isn’t ideal at a time when rising interest rates are pulling up their costs and making their borrowed cash more expensive to pay off.
Why should I care?
For markets: Money can’t buy happiness.
Even flush with loads of cash in the form of tax credits, subsidies, and loans from the US and European governments, green energy companies are still slipping. What’s more, that external assistance means plenty of firms that couldn’t have survived off their own back are still alive and kicking. So this mass underperformance could end up being a game-changer: suffering companies will need to rethink their strategies – renegotiating contracts and cutting out unprofitable ventures – to stay above water. So in theory, the future will be full of energy businesses built to last.
The bigger picture: Misery loves company.
Regular stocks are feeling the heat of high interest rates too. See, those rates minimize the reward that investors get from holding onto riskier stocks rather than more stable assets like bonds or cash. And at the same time, rising rates have pulled returns on bonds and cash up to their highest point in more than 20 years. For investors, ditching stocks and filling up savings accounts has been a no-brainer.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.
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