Feeling Flushed…

An interesting recent commentary from JP Morgan Asset Management, who we tend to hold in much higher regard generally than many of their Wall Street neighbours (actually they're based at Park Avenue, so maybe that explains it!) covered the aftermath of the Copenhagen climate summit last month. The general takeaway was that the summit was disappointing, partly because expectations were set very high, however the issue of reducing carbon emissions has not gone away. JP Morgan's Global Multi-Asset Group believe that while multilateral agreements may be hard to forge, many countries do appreciate the need to reduce reliance on fossil fuels and are increasingly aware of the widely publicised and perceived flood, drought, and ocean acidification risks.

They go onto make the telling point that the energy price spike in 2008 brought alternative energies into vogue for commercial reasons. They see this as a potentially interesting time in this particular space - the current downturn has caused an immediate reduction in fossil fuel consumption but hasn't yet really caused any major structural change in consumption. While we remain extremely wary of industrial commodities whose supply is potentially liable to get ahead of falling demand in any further downturn, double dip or prolonged industrial slowdown we should be looking closely at those commodities where supply is seriously constrained. In that context, JP Morgan share our enthusiasm for water –

"Energy, and eventually also water, constraints are likely to mean that finding effective and viable alternatives to fossil fuels is critical. In spite of some people writing off Copenhagen, expect alternative energy to become an increasingly important theme for investors."