Birchwood – Newsletter & Financial Updates


China Plans Massive Investments into Renewable Power

The world’s largest nation is on a spending binge as it continues a record $ 360bn dollar five-year commitment to significantly expand its capacity in the renewable energy sector. It’s an ambitious target but the Central Government has renewed its focus towards cutting its reliance on the use of fossil fuels to power its enormous demand for electricity generation and at the same time tackling its worsening air quality and pollution.

According to China’s National Energy Administration (NEA) installed renewable power capacity will make up half of all new electricity generation towards the fifth year in 2020 and encompass a broad spectrum of technology, including, wind, solar, hydro and nuclear.

China is set to become the largest player in the worlds renewable energy industry, as already the country has obtained the status of being the world’s largest solar generator for nearly two years now. Still the current plan estimates that despite the scale of its requirements its renewable sector will just account for less than 20% of overall energy consumption by 2020.

Because of its focus towards renewable energy China has already seen a gradual decline in its use as well as importation of coal, with consumption having declined from its peak in 2013 and as importations of coal fell sharply in 2015 by approximately 30%.

Under the targets of China’s renewable energy development plan the NEA expects investments into Solar of US$ 140bn by building around 1,000 significant solar power plants and boosting the country’s capacity by five times. Another US$ 100bn is programmed to be spent on wind farms and more than US$ 70bn into building new hydroelectricity plants, following long after the country’s opening of the world’s largest hydro-electric dam, well known as the Three Gorges Dam.

The amounts of investment are huge capacity. And after the success of the country’s massive 22,500 MW Three Gorges Dam project, there are plans to continue investing heavily into hydropower as well as geothermal and the rapidly expanding and exciting area of biomass. Again, due to the sheer scale of Chinas requirements it is of no surprise that the country has, for some years now, dominated the worlds wind turbine manufacturing industry, with more than half of the world’s top ten wind turbine producers being Chinese companies, the largest of which, Goldwind, maintains its position as the world’s number one producer. With the balance of $50bn to be spent on new tidal projects as well as further development of the country’s geothermal generation capacity.

When it comes to the sheer scale of China’s energy needs the country is fast becoming the world’s largest renewable energy producer, with the country’s investment of US$ 110bn into clean energy in 2015, nearly three times that spent in the European Union of US$ 40bn in the same year. And clearly the trend for strong growth will continue for many years to come, offering strong long-term growth prospects for many of the world’s leading suppliers and developers, such as Siemens and GE.

The government has also delivered on its commitment to reduce its dependence on coal as a cheap source of generation as numbers from the NEA shows China invested much less into developing new coal fired power stations in 2015 of US$ 20bn and that this amount was less than one fifth of the US$ 110bn its spent on renewable energy power plants.

And we can expect to see this aggressive trend continue as the Chinese government projects that the countries renewable energy sources will continue to expand significantly through to 2020 when it expects to have 200 GW of solar installed and up to 250 GW of wind power capacity. And after the success of the country’s massive 22,500 MW Three Gorges Dam project, there are plans to continue investing heavily into hydropower as well as geothermal and the rapidly expanding and exciting area of biomass. Again, due to the sheer scale of Chinas requirements it is of no surprise that the country has, for some years now, dominated the worlds wind turbine manufacturing industry, with more than half of the world’s top ten wind turbine producers being Chinese companies, the largest of which, Goldwind, maintains its position as the world’s number one producer.

Lured by China’s rapidly expanding and diversifying energy markets and the governments strong commitment towards the renewable side of the business, global investors are increasing exposure to this sector with a particular emphasis on suppliers of equipment and providers of finance to fuel this ongoing boom.

Recognising the enormous demands for finance from the renewable sector in China, government policies have been focused towards increasing the involvement of local development banks as well as a bold initiative to establish a ‘Green Financial System’ to support the capital needs of the industry. This system which was led by the Peoples Bank of China as well as the Green Financial Task Force in China, has since its beginnings in 2015,

The demand for finance is huge and the Government has reacted accordingly to allow for non-traditional sources of finance to help fill the funding gap, on the back of its Green initiative, Chinese banks have gone on to issue a number of large US$ 1bn plus green bonds, after the initial success of the Agricultural Bank of China’s first issuance back towards the end of 2015. Whilst initially many of the world’s larger investment banks have had, at best, minimal exposure towards helping to finance this build out of China’s renewable sector, we expect to see this change over time. In this regard it has been interesting to note further calls from policy makers around the world, particularly in the United States, with President Donald Trump calling on China to open its markets further to U.S firms, and financiers.

We encourage investors to follow closely developments within China’s energy markets which are fundamental to the ongoing growth and health the country’s economy, and which will continue to offer investors a growing range of ways to gain exposure to this growth. Electricity is one of the most fundamental investments available and every portfolio can benefit from the stability that the industry offers and the cash nature of the returns it generates.


Major New Technology Trends

I remember too well the dot.com boom days of the late 1990’s when the rapidly evolving technology sector propelled stock markets around the world to exciting new highs. These new hot stocks offered investors the promise of a new era and exciting returns for those brave enough to position in a host of new companies searching for investment dollars.

Whilst sadly many of those stocks are no longer with us, quite a few still are and have gone on to become household names and in the process generated exceptionally high returns for those savvy investors who backed the right horse in those early days.

Now, some two decades later, the technology sector is soaring again, with the technology heavy Nasdaq index outperforming the broader Dow Jones Industrial Index by an annual rate of 10% over the past ten years. Once again, it’s an exciting time for investors as businesses and consumers throughout the world are taking advantage of the rapid advancements made in a wide range of new and innovative technologies coming to the market. Whilst initially slow to adapt companies throughout the world are using new technologies to offer new services and save on costs and many more small companies and startups are transforming and starting up, many backed through venture capital firms which see the potential for superior returns as the technology sector continues to mature.

As a brief guide with offer a few key technology themes that we believe offer significant advantages to business, as well as consumers, and which we recommend investors study up on and look to gain exposure too.

Blockchain Technology

This potentially game changing technology has taken the world by storm, most especially in the last few years as the most popular application, in the form of Bitcoins, has provided exceptional returns for investors. In layman terms, a blockchain is a form of digital ledger which creates a public and chronological record of all transactions undertaken using cryptocurrencies. The technology was invented in 2008, creating the digital currency bitcoin, and as it continues to develop businesses are now looking for other uses, apart from the widely popular bitcoins, to make use of this new technology.

Social Media

From initially being used as digital platform for connecting people from all different parts of the world the technology has now evolved into a profitable and convenient marketing tool for all businesses. In doing so the development of social media technology has created many new and engaging forms of marketing which are driving significant change in the way businesses react with consumers and generating substantial new revenue flows in the process. When you consider how many people use social media every day and the amount of new money that is being invested in development to advance and grow social media, we are sure it will provide exciting opportunities for investors well into the future.

3D Printing

It’s a sign of just how far we have come when it comes to the invention of 3D printing which has to be one of the most exciting technological developments of recent times. This technology has the potential to drastically change the way the manufacturing industry works, enabling businesses to produce and customize prototypes quickly and cost effectively and ultimately bring products to the market sooner and most likely at less cost to the consumer. We have great expectations for companies within this space and believe that as the industry continues to advance and as the number of applications grow, savvy investors can expect rewarding returns over time.

Commercial Drones

Whilst the real commercialization of drones is still in its infant state this new application for an existing technology offers the potential for a relatively quick transition towards providing some very innovative commercial uses in the near future. Just think about Amazon’s plans for its Amazon Prime Air delivery service. Whilst it will still take substantial time for many commercial uses to reach critical points, the delivery industry faces many obstacles to overcome, early stage use of drones. Adopters within nontraditional businesses for new tech, such as construction, agriculture and security industries are already benefiting significantly from the use of drones. These are just a few of what we consider to be highlights of recent new trends in technology and as innovators continue to create new discoveries and uses every day, we believe it is an excellent time for investors to keep up with the newly emerging opportunities for investment within the rapidly evolving technological sector.


The Basics of Investing in Arts

In recent newsletters we have taken a look at alternative investments and for this week we thought it would be interesting and perhaps helpful to take a quick look the basics of investing into Art. Over the centuries we have witnessed and read accounts of how the very wealthy amongst us have acquired some of the world’s most amazing paintings, and at prices which often seem to defy gravity. So why do we have such a long history of investing into the arts, how has the market changed over the years and what are some of the key principles that a new investor should keep in mind when looking to invest into the art markets.

It can be a hard lesson to learn, but it is critically important that true investors into art, realize that it is important to invest in original and handmade work, which historically has the most potential for price appreciation. Stay away from prints that are made from the original works, these are machine generated and often with no limit as to the amount of copies that can be reproduced. Whilst some specific works may print limited editions, most do not, and we encourage those investors who are starting out into the arts, to steer clear of investing into prints.

Whilst it can be exciting to discover the next unknown artist, it is fraught with danger, most especially for beginners, and whilst exciting returns come from finding the next Picasso, it takes many years of experience and exposure in order to have any chance of success in this way. So, for beginners we stress the importance of staying with well-known and recognized artists and galleries, check to see if other people have purchased work from the artist and ask around as to what prices have been paid for such work over time.

Just as with all financial markets and advisors, it is also important to do your homework and only deal with art brokers that are well known or perhaps come recommended by someone you know.

Do your research and meet personally with the broker to make sure they have the necessary knowledge and connections within the particular art markets that you are most interested in. An alternative for the beginning investor is to also consider using an art gallery to facilitate your first investment, but make sure you ask them to outline exactly their commission structure and be wary of those who charge outrageous commissions of 50% or more.

Once you begin to learn the basics and get a better appreciation for art as an investment vehicle, you will begin to fine tune your process and increase your knowledge, and your eye, for good quality artwork and for passionate artists who are committed to their craft. This is where investing in art becomes much like a hobby and it can be, not only, enjoyable but exceptionally rewarding over time as you develop your capabilities. In general steer away from those artists who have taken it up as a hobby or perhaps as a side job and search out those who have a complete dedication to their craft.

As you develop your capabilities and appreciation of what is available in the art markets you are interested in, then we suggest you maintain a bias towards investing in works of art that are original and into artists that are producing their own particular style, theme or perhaps variation of a well-known style or artist.

For most investors a little bit of art in their portfolio can be a great thing and unlike most forms of traditional investments, you may be able to even bring your investment into your life, hanging your piece on a wall in your house or perhaps the office or boardroom. And if you get it wrong and your investment doesn’t quite generate the return you were looking for, at least you have the memories and the appreciation that comes with owning a piece of art that caught your eye.