Chinese coal stocks soar as investors bet economy trumps emissions

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SHANGHAI — Investors are snapping up Chinese coal stocks, betting the country’s urgency to revive economic growth will outweigh concerns about pollution to boost demand for fossil fuels and reliable power.

China’s coal index jumped around 10% in August, taking this year’s gains to nearly 50%, compared with a decline of nearly 20% for the blue chip CSI300.

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Flows are also impressive with the largest exchange-listed fund tracking the sector, Guotai CSI Coal & Consumable Fuels Index ETF, reporting that its assets under management increased fivefold from a year earlier to 5 billion yuan (720 million) at the end of June.

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Beijing must weigh short-term economic stability against longer-term carbon reduction goals, with markets betting a focus on the former will prevail. Gains in coal stocks also track the global outperformance of oil, gas and mining stocks.

“The demand for coal will remain strong in China. The renewable energy supply is not stable,” said Yuan Yuwei, hedge fund manager at Water Wisdom Asset Management.

A reckless “Great Leap Forward” campaign to cut carbon emissions would only create more peril than pollution, Yuan added, as it threatens to stifle the economy and industrial production.

Bad weather has disrupted renewable energy production in China and global energy security concerns have risen after Russian gas supply cuts exposed Europe’s dependence on energy imports.

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A long drought in the Yangtze basin this year has caused power shortages in southwestern Sichuan province, China’s biggest hydropower producer.

China has also not committed to actually reducing its coal consumption until 2026, providing room for growth. Generation is increasing, and analysts expect about 200 gigawatts of new coal-fired power capacity to be built by 2025.

“Technically, the solution to power shortages is not to build more coal-fired power plants,” said Li Shuo, senior global policy adviser at Greenpeace East Asia.

“Politically, however, interested groups are making a comeback, taking advantage of the need for energy security.”

Earnings, valuations and dividends are the icing on the cake for fund managers.

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Coal stocks are “a safe investment target, given the sector’s modest valuation, continued rise in coal prices and relatively high dividend ratio,” Guotai fund manager Xu wrote on Tuesday. Chengcheng.

Chinese coal stocks currently offer a dividend ratio of 5.8% and are trading at 11 times earnings – compared to 16.4 for the broader market – suggesting they are still cheap despite the recent surge .

China Shenhua Energy Co, the country’s largest coal producer, posted a 58% rise in profits in the first half. Yankuang Energy Group, another big coal company, saw its net profit nearly triple from a year ago.

For conventional energy sectors such as coal mining, “revaluation has just started,” said Mou Yiling, chief strategist at Minsheng Securities. ($1 = 6.9126 Chinese yuan renminbi) (Reporting by Jason Xue, Samuel Shen and Tom Westbrook; Editing by Ana Nicolaci da Costa)

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