Since 2019, the photovoltaic (PV) sector has been particularly impressive, with the cumulative increase in the photovoltaic industry index reaching 215.77%. Especially in 2022, the heat surrounding photovoltaics continued throughout the year, with the prosperity level continuously rising, and prices in various segments of the industry chain increasing. The price of silicon materials has repeatedly hit new highs, leading to a new round of expansion in both upstream and downstream industries.

However, entering 2023, the photovoltaic track, along with the entire new energy sector, seems to be somewhat unfavored.

Firstly, the reasons for the weakness of the new energy sector:

1. Recently, the overall A-share market has been weak, with a significant correction since 2022 (the CSI 300 index has fallen by 19.34% since 2022). In such a market environment, it is difficult to remain unaffected.

2. The new energy track had previously seen a substantial increase, inherently necessitating a correction. Coinciding with the overall market weakness, this has accelerated the correction process.

Data shows that since the new energy index touched a phase low of 1,012.09 points on October 19, 2018, it reached a historical high of 4,887.92 points on November 1, 2021, marking an approximate 3-year maximum increase of 383%.

Advertisement

Looking at the photovoltaic track, the continuous release of expanded production capacity has led to concerns about overcapacity, causing a decline in photovoltaic industry prices. However, in reality, a price decline may not be a bad thing for photovoltaics, as it could help to unlock suppressed demand, thereby promoting the redistribution of profits in the industry chain from the raw material end to the technology and operation ends.

Secondly, the prosperity level of the new energy sector, especially the photovoltaic track, remains high!

In 2023, the photovoltaic industry is still in a high prosperity cycle overall. New photovoltaic cell technologies may further drive cost reduction and efficiency enhancement in the photovoltaic industry, potentially becoming a new breakthrough for the photovoltaic industry in 2023.

Firstly, the demand for the photovoltaic industry remains robust.The fundamental driving force behind the long-term growth of the photovoltaic (PV) industry is that photovoltaics are the cheapest and cleanest source of energy. In the United States and Europe, the operational costs of fossil fuels are even higher than the total costs of building photovoltaic power stations. Moreover, the expansion of the industry chain is also very strong, with supply continuously keeping up, allowing some segments to achieve both volume and price increases.

Looking at the European market, data shows that by 2025, the cumulative installed capacity of photovoltaics in the European Union will exceed 320 gigawatts (GW). This means that from 2022 to 2025, the EU will need to add an average of more than 40 GW of new photovoltaic installations per year. However, the photovoltaic manufacturing capacity in the European region is relatively low, and the vast majority of photovoltaic products will be supplied by Chinese companies.

Therefore, the EU's major moves in photovoltaics naturally constitute a medium to long-term continuous positive for the domestic photovoltaic industry.

In addition to overseas markets such as the EU, the domestic photovoltaic industry is also growing rapidly! Data from the Energy Bureau shows that in 2021, China added 53 GW of new photovoltaic grid-connected installed capacity, accounting for 35% of the world's new photovoltaic capacity, and has been leading the world for nine consecutive years. The cumulative photovoltaic grid-connected installed capacity is 306 GW, accounting for 40% of the world.

Secondly, as the new energy track retreats, the sector valuation is becoming more reasonable, which is also one of the main reasons why most institutions believe the new energy track is worth looking forward to.

Data shows that the latest valuation (PE, TTM) of the new energy index is 18.08 times, and the price-earnings ratio percentile is 3.33%, meaning that the current valuation is only more expensive than 3.33% of historical trading days.

Furthermore, the entire new energy sector is still in a period of policy dividends.

Under the "dual carbon" background, the higher-ups attach great importance to the development of the new energy sector. The "14th Five-Year Plan" clearly mentions focusing on strategic emerging industries such as new energy vehicles, implementing future industry incubation and acceleration plans in industries such as hydrogen energy, and has introduced a series of policies to promote the development of the new energy industry.

Thirdly, investing in the photovoltaic track, regular investment in index funds may be a better choice.

There is a significant internal differentiation within the photovoltaic segment. Whether there is a logic of product upgrades driving price increases, whether there is a logic of short product replacement cycles driving more demand, and whether there is a logic of increasing penetration and domestic substitution will all affect the growth rate of enterprises in the photovoltaic track, thereby affecting investment returns.Facing the photovoltaic (PV) industry as a niche sector, it is difficult to predict which companies will ultimately triumph or what revolutionary new technologies might emerge. It is recommended that investors prioritize participation through related index funds.

Currently, the main index related to the photovoltaic industry in China is the China Securities Photovoltaic Industry Index. On one hand, the Photovoltaic Industry Index includes 50 constituent stocks. Although there are many constituent stocks, the weight is relatively concentrated. Top companies in the industry, such as Tongwei Co., Ltd., Longi Green Energy Technology Co., Ltd., Trina Solar Co., Ltd., and Jinko Solar Co., Ltd., are all part of the index. The combined weight of the top 22 companies accounts for 80%, indicating a concentration towards the leading companies in the industry.

On the other hand, the long-term performance of the Photovoltaic Industry Index has been extremely strong in recent years. Over the past three years, while the CSI 300 Index remained stagnant, the China Securities Photovoltaic Industry Index has seen a cumulative increase of over 150%. Moreover, after the recent downturn, the index valuation has approached a reasonable level. The latest price-to-earnings ratio of the China Securities Photovoltaic Industry Index is 22.51 times, and the valuation percentile is at an absolute low of 1.11% in history.

Fourth, several investment reminders:

First viewpoint: The medium-term upward trend has been confirmed. For the year 2023, a weak economic recovery is highly likely. The economic fundamentals are key to determining how far and how high the market will go. Currently, there is a strong expectation for a full year of economic growth. As a new energy sector with significant growth potential, the opportunities are clearly greater than the challenges.

Second viewpoint: The rebound will not happen overnight; pullbacks provide an opportunity for a "second boarding." It is difficult for a rebound market to be completed in a straightforward manner; there will be fluctuations. However, for high-quality tracks like photovoltaics, everyone should seize the opportunity to "catch up and board," overcoming fear.

Third viewpoint: Investing in index funds through a fixed investment plan is the best way to participate in the investment! The fluctuations in the entire new energy track are significant, due to both macro factors and long-term market style fluctuations, as well as changes in the industry's own fundamentals. Facing such a sector, using a fixed investment plan for funds can provide a better investment experience!