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Chinese Solar's Gains and Volatility Are Heating Up

14 June 2013 in Trading Ideas

Just in time for the summer roller-coaster season, we bring you an even more intriguing ride: Chinese solar stocks.

Consider the plight of the Chinese Solar motif since its inception in January 2012. Following an enticing jump of nearly 50% in its first two months, the portfolio of its stocks proceeded to swoon, falling as much as a 65% from that intial peak. Since late November, however, the motif, which contains a portfolio of stocks within this volatile industry, has more than doubled, climbing 11.9% in the past 30 days alone.

All told, the motif has declined 23% since its inception, while also offing plenty of opportunities to make or lose large amounts of money for those with an appetite to ride a risk rollercoaster with their investment.

chinese solar motif

In effect, most Chinese solar stocks are still above their recent April 2013 floor, when the whole sector began rallying in part due to a rumor that a division of Warren Buffett’s Berkshire Hathaway was interested in buying the assets of Suntech Power, a Chinese company facing bankruptcy.

However, as Ben Levinsohn pointed out last Monday in a blog for Barrons.com, the sector has had several things generating optimism in investors, including some better-than-expected earnings, promises of continued Chinese stimulus and low valuations.1 And for the past couple of months, those positive have outweighed the pesky negatives of European tariffs and a general lack of profitability in Chinese solar providers.

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All of which has tended to result in a continued extreme volatility for the sector. For example, when Jinko Solar soared on a better-than-expected profit report this past Monday, the impact to the broader Chinese Solar motif jumped more than 10%. A day later, after a disappointing report by LDK Solar, the motif’s performance fell nearly 8% based on the impact of that news to the stocks in Chinese Solar motif.

As Levinsohn noted, this sort of increase in both prices and volatility goes somewhat against the usual grain – and could be a reminder to long-term investors to avoid being complacent about recent gains.

1Ben Levinsohn, “As Chinese Solar Stocks Rise, Shares Get Riskier,” Barrons.com, June 10, 2013, http://blogs.barrons.com/emergingmarketsdaily/2013/06/10/as-chinese-solar-stocks-rise-shares-get-riskier/?mod=yahoobarrons.