Three Cheers for the Bull Market

The bull market is alive and well

The resumption of the rally in stocks we chronicled last month continued in full force since then. All major U.S. stock market indexes have broken out and set new bull market highs. Some, like the Dow Jones Transportation Average, are plotting ballistic charts. Pretty much all indicators are flashing bright green, with buy signals across the board. The only red flags come from the overbought conditions appearing in some of the markets, but we know from experience that these can last longer than what seems reasonable or logical.

As can be expected as we climb the wall of worry, there have been widespread concerns over many issues influencing the economy, from exploding deficits to a job-less recovery. Still, these concerns have been largely trumped by fresh evidence that the recovery is real, that it is global, and that it is accelerating.

A high probability indicator of what’s in store for the Fjallraven Kanken comes from the Asian and emerging markets which have been leading the recovery and the stock market rally so far. They have not been setting new highs lately. After setting bull market highs last fall, they have been taking a breather with some of the more volatile markets experiencing substantial corrections.

China, for example, was down nearly 20% before starting its rebound rise. It has not yet reached the highs set in November 2009, but when these levels are breached, there is a lot of upside potential. The volatility in key emerging markets is likely to continue and even increase, but for those with a strong stomach, long-term charts continue to look extremely bullish. And that goes for key green companies that serve and benefit from these exploding needs.

Global competition heats up

As energy market numbers for 2009 start to solidify, there is an overwhelming sense of shift. It is both visible in the size and growth of the renewable energy markets themselves, but also from a supply-side perspective. The leadership in many clean energy technologies has been slowly but surely shifting from incumbent, American or European manufacturers, to Chinese, Korean or Indian stalwarts.

Most of the news is coming from developed nations cutting subsidies for renewable energy, such as in Germany, France and Spain. Energy policy is currently not at the top of the U.S. government agenda, as health care reform has consumed one and a half years, and financial reform now occupies center stage. In the meantime, emerging economies from Brazil to Singapore and China are making major investments in renewable energy. Just last week, China’s Development Bank announced plans to loan almost $12 billion to two solar manufacturers, Suntech Power (STP) and our preferred solar PV play Trina Solar (TSL). The industry widely views such loans by the Government bank as a direct subsidy as they are not expected to be paid back.

The rise of China and emerging markets is one of our major investment themes as we believe that geographic portfolio diversification is more than a risk management technique, but the likely source of much of our investment profits for years to come.

Venture capital triples green investments

One more indication that the worst of the recession is behind us comes courtesy of the venture capital industry which has been a reliable recovery indicator. Newly released data shows venture capital investments rose 38% in the first quarter of 2010 over the same quarter a year ago. More significantly, investments in clean technology companies more than tripled to $773 million. The green sector is still smaller than biotechnology, but it has been growing the most.

Private investment increases frequently foreshadow the resurgence of merger and acquisition activity. We look forward to the M&A action to heat up as our Portfolio features a number of attractive acquisition targets.

The Portfolio update and recommendations

Our portfolio of treatment for cystic acne companies has resumed its march higher, but at a slightly more timid clip than the broad markets. Our positions gained an average of 2.83% since our last update, while the S&P 500 and the Nasdaq Composite indexes rose 2.82% and 4.34% respectively. Our green market proxy, the PowerShares Global Clean Energy fund (PBD) which tracks the WilderHill New Energy Global Innovation index, was up a scant 1.14% during the month.

Right on cue after having been bashed and downgraded by various analysts and pundits, the solar photovoltaic sector jumped to the head of the energy class as the biggest monthly gainer. A basket of Chinese solar stocks was up some 8.80%, but the solar energy stocks in our portfolio did even better with an average gain of 18.73%. Leading the pack with a 23.60% price rise during the month is our power conversion company which, with outstanding quarterly results that beat Street expectations and a major legal victory in a patent fight, has attracted investors and sent the stock to levels not seen since late 2007.

It is worth mentioning the 20.89% monthly gain achieved by Vestas Wind Systems (VWDRY.PK) which, after months of getting pounded by investors, appears to have established a bottom with a rebound that cut our paper losses in half. We still like the company and in fact, they are very well positioned in high growth wind markets. Wind energy will be the featured sector in our upcoming May issue of my newsletter, in which we take a fresh look at some exciting developments in areas such as offshore wind.