Future investment opportunities

It does not take a genius to see that the world economies will not be able to grow forever. they must reach steady state very soon.

For 100 years resources have become cheaper yearly apart from 2 world wars. However in 2002 resources tripled in price. China and India are wanting what we have and to satisfy them would require and extra 50%. this is not possible, so resources are going to be in short supply and go up in price. Minerals, agricultural and housing land, and water.

Coal will be a bad investment long term as no more than 13% of all fossil fuels can be burnt. Oil will be difficult to replace so coal will have to take the brunt of the reduction. At present wind and PV are cheaper for producing electricity so coal will not be something to invest in.

In the short term the stock market is chaotic and random and has very little to do with the reality of the long term.


Actuaries report on risk of climate change to insurance business   


Risk to pension funds

groups such as Mercer, KPMG, have begun to raise the alarm for long term asset managers. Earlier this month, the Institute of Actuaries said the assets of pension schemes will effectively be “wiped out and pensions will be reduced to negligible levels” if investors continued to ignore resource constraints and climate change issues.

HSBC, which had a quick look at the coal sector last June, have now crunched the numbers for the oil and gas industry – or at least the European sector.

It says the greater risk to market value does not necessarily come from leaving stuff in the ground, because the market already applies a discount to undeveloped resources. Still, in the case of Norway’s Statoil, unburnable carbon reserves could amount to 17 per cent of market capitalisation. In the case of British group BG, it would be less than one per cent.

The biggest impact, says HSBC, will be on lower prices caused by reduced demand for their product, particularly oil. In this case, HSBC says, up to 60 per cent of the value of fossil fuel companies could be lost, as this graph below illustrates.

“Because of its long-term nature, we doubt the market is pricing in the risk of a loss of value from this issue.” the HSBC economists say. Indeed, we can only think of one other analysis, a smaller one done by Citigroup a few years ago, which looked at Woodside and Coal and Allied.

Such impacts may not be that far away. The IEA said in 2011 that the world could exhaust its carbon budget by 2017 if it continued unabated. A year later, it said focusing on energy efficiency could deliver a further 5-year window. Either way, the crunch could occur in the next decade.

“We believe that investors have yet to price in such a risk, perhaps because it seems so long term,” the HSBC economists write. “And we accept that our scenario probably exaggerates the risk as we assume a low-carbon world today rather than beyond 2020. However, we believe it does give an indication of the potential impact on the sector. “

HSBC says reductions in oil demand can be delivered more quickly than coal through improvements in transport fuel efficiency.

Under the IEA low carbon scenario, demand for coal would fall by 30% between 2010 and 2035 and oil by 12 per cent. Gas would not be as affected, but it would grow more slowly.

source: Renew economy

Source: Renew economy