Note: The views and opinions expressed in this newsletter are those of the authors and do not necessarily reflect the official policy or position of Newday Impact. Any content provided by our authors is of their opinion and is not intended to malign any religion, ethnic group, club, organization, company, individual, or anyone or anything.
Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Past performance does not guarantee future performance.
IMPACT COMMENTARY
So Goes California…So Goes other US States … So Saves the Environment
There has long been the adage “as California goes, so goes the nation” because its size has a tremendous impact on the country’s economic health. But equally, it refers to the cultural and value-based revolutions and the evolving regulatory frameworks which drive many other parts of the country.
The Advanced Clean Car II (ACC II) passed by the California Air Resources Board (CARB) on August 25th of this year is just such a situation. ACC II will transition California to 100% zero-emission vehicle (ZEV) sales by 2035. States that have adopted or are expected to adopt California’s new rules constitute about 40% of the nation’s population and over a third of auto sales in the United States. They include such states as New York, Massachusetts, Virginia, Nevada, and Minnesota. This would be a major advancement in the fight against climate change.
If you look at the below breakdown of Greenhouse Gas Emissions in 2020, the largest sector is Transportation with Electric Power a couple percentages behind. And this sector’s largest sub-sector is cars and light trucks including SUV’s, not commercial aircraft or trains as one might think. Therefore, the California law will have a direct and material impact on greenhouse gas emissions.
The legislation also ramps quickly. California has the largest zero-emission vehicle (ZEV) market in the nation with 16% of new vehicles being sold being ZEV or plug-in hybrids. The regulation will require annual ZEV/PHEV as a percentage of new vehicle sales to be 35% by 2026, 68% by 2030, 88% by 2033, and 100% by 2035.
The ACC II also has elements to ensure it does not disadvantage lower-income people or neighborhoods or areas without charging stations to date.
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- Clean Cars 4 All provides up to $9,500 to low-income drivers who scrap their older vehicles and want to purchase something that runs cleaner.
- The Clean Vehicle Rebate Project (CVRP) provides up to $7,000 for income-qualified drivers to buy or lease a ZEV.
- The Clean Vehicle Assistance Program provides low-income car buyers with special financing and up to $5,000 in down-payment assistance.
- In addition, there is $300 million for more charging infrastructure, especially for those consumers who may not have a garage where they can charge their EV.
Climate change remains one of the major crises of our generation and the next. Like all generations, we face one or more and the question will always be, do we have the strength to face them? What is interesting is that we are being taught by our children. Studies show that Gen-Zers are the most concerned about climate change as they grew up with a sense of urgency every day. A new survey shows that Generation Z cares more about sustainable buying decisions than brand names. Therefore, the economic impact on companies will be great if they do not look to change their behavior.
At Newday, our portfolio holdings in Tesla (TSLA), the world’s largest electric vehicle (EV) company based in the U.S., and Li Auto (LI), one of China’s top three EV companies and the 12th largest manufacturer globally, provide our portfolios with exposure to the growing electric car market that we believe should allow our portfolios to be direct beneficiaries of California’s most significant regulation ever. We believe our portfolio’s exposure to renewable energy companies such as NextEra Energy Partners (NEP), SunPower Corporation (SPWR), Vestas Wind Systems (VWS), and Boralex (BLX) will also offer alternative opportunities to capitalize on the transition to the adjacent clean energy markets and the expansion of the EV charging grid occurring not only in California but across the US through the Inflation Reduction Act (IRA).
This is your chance to put your values to work and join in with those of the next generation. And if the old adage holds true, and this works its way to the rest of the country, it may significantly impact the entire US auto and energy markets as what was once considered a niche segment moves more mainstream.
For more information relating to Newday’s Climate Action Portfolio, please visit Climate Action Portfolio | Newday (newdayimpact.com). This portfolio was built in collaboration with Etho Capital and seeks long-term capital appreciation by investing in companies that we believe exceed leading climate investment standards, are net climate positive on the Etho Global Climate Positive Index, and dedicate resources not only to reducing pollution but to implementing real solutions.
DISCLOSURES: This commentary is provided for information purposes only and is not an offer or solicitation of an offer to buy or sell any product or service. Unless otherwise stated, all information and opinions contained in this publication were produced by Newday Funds, Inc. (“Newday Impact”) and other sources believed by Newday to be accurate and reliable. All expressions of opinions of the financial markets, general investment strategy, or particular investments are subject to change without notice.
Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized.
Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Past performance does not guarantee future results.
Newday Funds, Inc. (“Newday Impact”), an SEC Registered Investment Advisor, is a wholly owned subsidiary of Newday Financial Technologies Inc.
COUNTRY GOVERNANCE RESEARCH COMMENTARY
Ukraine begins long-anticipated counteroffensive in the south
On August 24, Ukraine celebrated its Independence Day, the same day also marked six-months since the start of Russia’s full-scale invasion of its territory. The war has increasingly devolved into a stalemate with neither side reporting any recent major gains in territory. However, as the war has shifted to the south Ukraine is attempting to regain the initiative with the start of its long-telegraphed push to retake the city of Kherson. There are early reports that Ukraine has pushed back Russian troops in some of the villages around Kherson. Russian forces west of the Dnipro are already largely cut off from resupply, as Ukraine has used the American-provided High Mobility Artillery Rocket System (HIMARS) to destroy bridges across the river. Ukrainian military officials have urged patience as they attempt to degrade Russian forces and slowly push forward while not risking high casualties among their own troops with a full-frontal assault. Just north of the fighting in the south international concern has grown around Europe’s largest nuclear power plant which Russian troops have occupied and forced Ukrainian engineers to operate under duress.
Implications: After months of grinding conflict, Ukraine hopes to be able to show progress in order to forestall any war weariness among their population and their western backers whose on-going support will be critical in what is shaping up to be a protracted conflict. At the Zaporizhzhia Nuclear Power Station, IAEA inspectors are expected to arrive soon for a possible extended mission to help safeguard the plant from a potential nuclear catastrophe.
China and US reach agreement on auditing inspections
Chinese and US regulators have reached an agreement allowing US regulators to investigate the auditors of Chinese companies listed on American exchanges. The dispute stretches back to the passage of the Sarbanes-Oxley Act in 2002, which established the Public Company Accounting Oversight Board (PCAOB) and gave it the mandate to inspect the auditors of US listed companies. For more than a decade the PCAOB has been blocked from conducting such inspections for accounting firms in mainland China and Hong Kong. In 2020, Congress passed legislation that would delist foreign firms by 2024 if their auditors can’t be inspected by the PCAOB for three consecutive years. With the threat of delisting looming, the PCAOB, the China Securities Regulatory Commission and China’s finance ministry signed a deal earlier this month that the PCAOB say will give it “complete access” to Chinese auditing firms. However, the full text of the deal has not been made public, and there could still be disputes in how the accord is interpreted and implemented.
Implications: The agreement at least for the time being removes the threat of delisting for about 200 stocks with a market capitalization of around $1.3 trillion. PCAOB inspectors are expected to put the agreement to the test in September with audit inspections of Alibaba Group Holding Ltd among others. PCAOB will determine by the year-end whether China and Hong Kong have complied with the deal or if instead the countdown to delisting continues.
Turkey continues its unconventional approach to monetary policy
Turkey’s central bank surprised markets when it lowered its benchmark rate to 13% from 14% despite having one of the highest rates of inflation in the world at over 80%. Most observers predicted rates would remain unchanged as they had for the last eight months. The pause followed a 5 percentage points drop in the benchmark rate over the last year. The easing cycle was instigated at the instance of President Tayyip Erdogan – he fired a series of central bank governors and officials who had refused to go along with his unconventional theory that high interest rates cause inflation. One result has been the weakening of the lira to near historic lows. It fell 44% against the dollar last year, and is down more than 27% so far this year. Nonetheless, the central bank pointing to slowing growth said further interest rate cuts were needed “to preserve the growth momentum in industrial production.” Despite an official target of inflation of 5 percent, the central bank has clearly prioritized economic growth at the expense of price stability and the currency.
Implications: The range of unconventional methods Turkey has used to try to prop up the lira are not likely to be sustainable in the long-term and could eventually trigger yet another currency crisis. With less than a year before elections, Erdogan is betting he can benefit from an inflationary growth spurt before the economic consequences come home to roost.
Disclosure
This commentary is provided for information purposes only and is not an offer or solicitation of an offer to buy or sell any product or service. Unless otherwise stated, all information and opinion contained in this publication were produced by Newday Funds, Inc. (“Newday Impact”) and other sources believed by Newday Impact to be accurate and reliable. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions of the financial markets, general investment strategy, or particular investments are not recommendations to clients and are subject to change without notice.
Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Past performance does not guarantee future performance.