Green equities continue strong recovery in Q2
- Technology – Technology was by far the best performing global industry. This benefited SI, as all of the global SI strategies in this report are overweight the industry. This led to a relatively concentrated market performance (particularly in the US) in large tech names, driven by better than expected Q1 results and artificial intelligence (AI) speculation.
- Energy – Energy equities continued to underperform in Q2, despite two OPEC production cuts. This benefited SI strategies, which are all underweight Energy, however it was less influential to SI in Q2 than Q1. Green equities outperformed energy equities for a second quarter in a row, after underperforming in 2021 and 2022.
- Regional dispersion – US and Japan saw the strongest SI active performance, whereas UK saw the weakest.
- Volatile macro quarter - Q2 saw multiple macro issues; concerns over the US debt ceiling, and interest rate rise; weakness in Chinese economic re-opening; and OPEC oil production cuts. However the market largely looked through these issues, posting a strong, positive performance, particularly in the US, driven by Growth.
- Performance leads valuation premia up – Strong SI performance against a backdrop of a relatively weak macroeconomic environment in the last six months has resulted in an increase in both absolute valuations and SI premium over the broader market, particularly for EO and PAB. This may be something to watch in Q3 given previous SI premium issues in 2020 and 2021.
- Green investment capital remains strong - Despite cautious equity investors, Q2 SI fund flows show investment capital from green bond issuance and government support for clean energy have stayed strong.
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