It's no secret the world is decarbonising, but there's another reason the ASX renewable energy sector could be worth watching in 2022.
Chief investment officer for AXA Investment Managers' Core Investments Chris Iggo says decarbonisation could increasingly "determine capital allocation and investment opportunities" in the future.
Let's look at why the fundie is bearish on decarbonisation, as well as which ASX shares operate in the area.
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The market in 2022
While the risk of COVID-19 causing havoc on share markets continues as the new year approaches, concerns of inflation have also started to surface.
According to Iggo, during the pandemic, policymakers supported economic growth by cutting interest rates and "loosening fiscal purse strings". But now, he says, "the era of pandemic-crisis monetary policy is coming to an end".
As a result, central banks will likely scramble to reduce inflation – a challenge that's not so simple. Iggo commented:
The impact of the pandemic on global economic trends … will take some time to really understand. For now, however, central banks will err on the side of caution and will need to be convinced – by evidence of persistent second round effects – that the decades-long period of low inflation is coming to an end.
Luckily, Iggo believes investors can look forward to "decent returns" while central banks make necessary changes.
That's because trends like energy transition are still pushing companies to make structural changes.
ASX renewable energy sector on watch
Iggo is optimistic about renewable energy in 2022. Particularly, as energy prices are likely to continue increasing. He commented:
Energy prices rose in the second half of 2021 – a key reason why broader inflation has also increased – yet, there has been no global approach to pricing carbon, which could push energy prices even higher. When it comes, and it will, the economics will swing sharply in favour of renewably produced energy and that will quickly allow upstream activities to benefit.
He also noted that the ongoing COVID-19 recovery, climate innovation, and re-purposing supply chains may bring "strong tailwinds for equity investors", leaving investors with "opportunities to profit".
Finally, he stated, the march towards decarbonisation will be driven by the market even more so in 2022:
Investors are playing a key role in supporting decarbonisation through asset allocation decisions, in engagement with companies on transition plans, and by supporting new technologies and business models that rate highly in terms of ESG.
With that in mind, here are some shares to consider:
3 ASX renewables shares
Genex Power Ltd (ASX: GNX)
Genex Power is working to build a portfolio of renewable energy projects within Australia.
It operates projects producing power from solar, hydro energy, and wind, as well as a battery storage project.
Right now, its share price is 20 cents, 9% lower than it was at the start of 2021.
Infratil Ltd (ASX: IFT)
Infratil is a largely New Zealand-focused company investing primarily in energy, transport, and social infrastructure businesses.
The company owns a business that operates 22 New Zealand hydropower stations. It also owns others that develop wind and solar generation in North America, Europe, and Asia.
Infratil shares are currently trading for $7.60, 6% higher than they were at the start of this year.
Contact Energy Limited (ASX: CEN)
Contact Energy also operates in New Zealand.
It retails electricity generated from geothermal and hydropower.
The company also produces power using thermal generation and supplies gas and broadband.
Shares in Contact Energy are swapping hands for $7.30. They've fallen 14% in 2021.
