The Russian Invasion of Ukraine is a Game-Changer for Energy Transition – KraneShares

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Our market update is a collaboration between the KraneShares internal research department, our local Chinese partners, and select China thought leaders from around the world.

European nations have committed to energy transition to meet climate objectives, but now urgent energy security issues are causing them to accelerate their plans.

The KraneShares Global Carbon Transformation ETF is designed to capture this market opportunity, a super-cycle of capital spending that is just beginning and we believe will drive huge growth globally across a range of industries.

While first and foremost a human tragedy, the Russian invasion of Ukraine is a defining event in global decarbonization.

In the past month, Europe has substantially increased the scope and breadth of its decarbonization activities, recognizing that greater energy independence is within reach with the deployment of green technologies.

In the multi-year rebuilding of Europe’s energy infrastructure, both legacy energy producers and renewable companies can win – and the objectives of energy security and energy transition can co-exist.

Europe’s urgent necessity for energy independence is also the catalyst that should trigger a global acceleration of the energy transition, allowing leading decarbonization players and processes to scale faster, driving costs down.

In 2020, the European Union imported 58% of its energy needs from Russia, its largest outside supplier of oil, natural gas, and coal.3 Natural gas is the dominant source of energy for European households and is also used in power generation and industry.

The price shock has an immediate impact on European industrial competitiveness and their consumer economies.

Just the increase is equal to more than 10% of the average salary in the country.2 This directly affects peoples’ ability to consume and creates significant and immediate political pressure.

The rise in energy prices has rapidly leveled the playing field between legacy fossil-based industrial processes and green approaches.

High energy costs will cut into the profits of European industry and reduce the spending power of European households.

KGHG portfolio names that may benefit include French industrial gas company Air Liquide, which is investing along with Italian KGHG holding ENI in the development of hydrogen mobility.

Europe’s objective is “affordable, secure and sustainable energy” and independence from Russian fossil fuels “well before 2030”.

We believe the beneficiaries include companies that own existing infrastructure; those that make and install the incremental equipment; the technologies and processes that will be added, and the value chains that support them.

While many areas of the European economy will suffer from margin compression and reduced spending because of sustained high energy prices, the sectors that are the focus of KGHG are beneficiaries.

The KGHG portfolio is focused on those companies around the world that are expected to emerge as the future leaders of decarbonization, and on the key elements of their supply chains.

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Certain content represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results; material is as of the dates noted and is subject to change without notice.

The primary risk of derivatives is that changes in the asset’s market value and the derivative may not be proportionate, and some derivatives can have the potential for unlimited losses.

KGHG is subject to the risk that governments globally could abandon or diminish their greenhouse gas reduction initiatives, which may have the effect of reducing the corporate incentives to adopt clean and low-emission energy technologies and processes, resulting in less activity in this area and potentially adversely affecting KGHG.

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