The furore over China’s air pollution paves the way for growth in cleaner, less polluting energy sources, said Raymond Chan, CIO equity Asia Pacific at Allianz Global Investors.
‘Anger is growing in China’s cities about untenable levels of air pollution’, said Chan, who runs the Allianz Asia Pacific Equity fund.
This has pushed the Chinese government to seek alternative energy sources to coal, which while cheap, comes with high levels of pollution and carbon emissions.
‘China has been actively promoting many energy sources: natural gas as a substitute for coal and heavy oil for industrial use; liquefied petroleum gas for residential and commercial uses; and diesel and gasoline for vehicular use.’
But among the alternatives, Chan finds some of the most attractive investment opportunities in natural gas.
According to Chan, natural gas consumption in China has grown by 500% in the past decade and despite this heady growth, remains underutilised.
‘(Natural gas) accounts for only around 5% of China’s total energy consumption. This is among the lowest levels in the world and far below the world average. The government has set clear targets to increase the role of natural gas as a primary energy source, aiming to double its use by 2020,’ said Chan.
Infrastructure development is another factor that supports Chan’s natural gas thesis.
‘China plans to build pipelines and liquefied natural gas terminals for gas imports. Increasing the gas supply will also mean new uses, including vehicles and heating. Power generation will also continue to be a major driver of gas consumption.’
‘As a result, we have a positive outlook for city gas distributors, which should benefit from a strong compound annual growth rate over the next few years. We believe this is a structural growth story, and these names are well-represented in our portfolios.’
Since January 2005, Chan has managed the Allianz Asia Pacific Equity and year-to-date, as at end-May 2013, the fund has returned 0.08% against the benchmark MSCI AC Asia Pacific ex-Japan TR USD return of 0.18%.