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Solar Energy Stocks Are Red Hot! Why?

This post is part of a regular series written by ETF Trends editor Tom Lydon, special for CNBC.com.

On Thursday, solar exchange traded funds (ETFs) soared by about 17 percent, and some stocks within the funds were up by as much as 50 percent. For the week, the ETFs finished up about 30 percent. What gives?

The Chinese government said that it intends to take a “firm attitude” to support the local development of solar energy. Analysts are taking different positions on the announcement, though. Some said it was a positive development in the sector — although they cautioned about whether investors should so heavily bank on a plan that was short on real specifics or a timeline.

Other analysts say it’s the most aggressive and generous solar power subsidy in the world. The plan would offer $2.94 per watt for solar photovoltaic installations greater than 50 kilowatts. At current prices, it would cover half the cost of entire installations.

Right now, it’s unclear whether China’s subsidies would directly benefit their domestic manufacturers. The country has a sizeable solar industry that’s based almost entirely on exports, although the country has several large-scale domestic projects in the works.

Whether it benefits China’s companies or those abroad, both solar ETFs in the United States stand to benefit.

Both Claymore/MAC Global Solar Energy Index and the Market Vectors Solar Energy are globally allocated with heavy weightings in China: 26.2 percent and 22 percent, respectively.

Some of the China-based players include Suntech, LDK Solar and Yingli Green Energy.

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Compare to Oil Stocks Today:

Chevron

Exxon Mobil

Valero Energy

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Tom Lydon is the editor of ETF Trends and author of iMoney: Profitable ETF Strategies for Every Investor.

Disclaimer

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