Cleaning Up in Asia 

09/23/2009 10:11 am EST

Focus: GLOBAL

Andrew McHattie

Editor, Investment Trust Newsletter

A new environmental fund set to list in London will target the shares of green Asian companies, writes Andrew McHattie in Investment Trust Newsletter.

It’s been a while since we have had much to report in the way of new issuance, so we are very glad to have the details of a new issue from Impax which is coming to the market through a placing and offer for subscription. The Impax Asian Environmental Markets trust is slated for launch in early October and plans to raise between £50 million and £200 million.

Impax is dedicated to the environmental sector, and already manages the £320-million Impax Environmental Markets (LSE: IEM) investment trust. This new trust will be listed on the main market of the London Stock Exchange, and will aim to benefit from the expected superior, long-term capital growth of companies active in the environmental sector that are based in the Asia Pacific region.

A whole range of problems such as population pressure, oil prices, water shortages, limited space for landfill, air pollution, and global climate change are being met by positive responses in the form of new legislation, technology, and peer pressure to become more environmentally responsible and more “green.”

Impax estimates the business segment to be worth some $500 billion per year, and expects compound annual growth returns of 12%-15% over five years. The companies targeted in Asia will include those involved in substituting imported oil and gas, encouraging clean electric power generation, reducing air and water pollution, and extracting value from waste.

Asia still boasts cheap manufacturing costs, with labor and land prices well below those in the West. Two examples illustrate the point. The first is the cost of non-silicon manufacturing for solar cells, in terms of US dollars per watts peak. The cost of manufacture is $0.90 for REC (Oslo: REC) in Norway, $0.70 for Solarworld (XETRA: SWV) in Germany, and just $0.30 for manufacturers such as JA Solar (Nasdaq: JASO) and Suntech (NYSE: STP) in China. Another example is the supply of wind turbine components: Impax says the share of these made in Asia has risen from 10% in 2006 to 26% in 2008.

Turning to demand, there are still parts of Asia with water shortages, the air quality is dreadful in parts of China, and even sewerage is by no means universal, reaching only 60% of Delhi, 8% of Manila, and 2% of Jakarta. Landfill is estimated to account for 93% of waste disposal in China, compared to 57% in the US and just 5% in the Netherlands. There is a lot of local business potential, in other words, as Asian economies become more sophisticated in their own environmental requirements.

Crucially, the trust has been able to identify what it calls a “sizeable universe” of 340 relevant stocks with an aggregate market capitalization of $660 billion. The trust will generally have 30-60 stocks in its portfolio, selected for “growth at a reasonable price.” We think this trust looks very interesting, combining two growth areas under one remit.

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