It appears we’ve reached the point when many companies – and investors — are having second thoughts about the economic health of China.
Consider Macy’s, for example. The US-based mega-retailer said recently that it was putting its plans on hold to expand its online presence in China. That move followed a similar one by another American name, Neiman Marcus, which closed a mainland warehouse used to fill orders from the store’s e-commerce site.1
Macy’s denied that the move was a statement about China’s broad economic health, but other evidence suggests that a slowdown is at hand. The country’s second-quarter GDP growth fell to 7.5% year-over-year, down from 14.8% growth in the same quarter six years ago.
And then – there are Chinese solar companies.
Nearly given up for dead less than a year ago, the march upward by many Chinese solar stocks has been practically without pause. The Chinese Solar motif, for example, has gained 170.3% in 2013, and in the last month alone has posted a 34.8% rise. The S&P 500 has gained 20.5% in 2013 and 0.6% for the past month.
Essentially, the sector hasn’t looked back since Deutsche Bank raised its rating on two key Chinese solar stocks, Trina Solar and Yingli Green Energy, which just happened to comprise half the weighting of the Chinese solar motif.
The bank’s optimism sprung from the Chinese government’s announced plan to provide low-cost financing for new solar projects, while adding solar downstream segments that are developing solar project pipelines and new feed-in tariffs.
As 24/7 Wall St.’s Paul Ausick notes, this is dovetailing nicely with Chinese solar companies finally bringing their manufacturing capabilities more into line with market demand and, in turn, has them following a course laid out by U.S. solar makers. That led to the acquisition a few years ago of solar project developers to soak up the companies’ production and to take advantage of the higher value-added market for system design and installation.2
(It’s worth noting that US solar makers aren’t doing too badly, either. Shares of SunPower, for example, have quintupled this year as demand and stabilizing prices have set up the company to deliver an EPS gain of 733% in the third quarter. The stock has a 7% weighting in the Cleantech Everywhere motif, which is up 11% during the past month and has risen 100% so far in 2013).
Because the Chinese government at both the central and local levels have gotten behind solar energy with low-cost loans and feed-in tariffs, the outlook for these solar players remains bright, Ausick said.
It should be noted, however, that some of this momentum could be, for the time being, a function of short squeezes and the piling in of institutional investors chasing a momentum play.
However, some bullish investors may require more certain evidence of investor capitulation before exiting the sector.
1Kathy Chu, “Macy’s Rethinks Web Plans in China,” WSJ.com, Oct. 6, 2013.
2Paul Ausick, “Solar Flares: Why Chinese Solar Stocks are Shining,” 24/7 Wall St., Sept. 30, 2013, http://finance.yahoo.com/news/solar-flares-why-chinese-solar-142557830.html, (accessed Oct. 8, 2013).