Three megatrends to benefit from Chalmers' first Federal Government budget

Electric vehicles, clean energy, and critical minerals megatrends could benefit from federal budget
BetaShares says federal budget confirms growing likelihood of economic dark days ahead
The ASX companies and ETFs offering exposure to megatrends which could benefit from budget

Stocks centered around electric vehicles, clean energy and critical minerals may be the megatrend beneficiaries of Federal Treasurer Jim Chalmers’ first budget amid rising inflation and prospects of a global recession.

BetaShares chief economist David Bassanese told Stockhead the ongoing war in Ukraine, as well as the global bounce back from the Covid-19 crisis, means higher inflation and further tightening of monetary policy, a story that imposes itself through the budget.

He said the prospect of recession – particularly in the US – gives investors little room to move except for fixed income and cash.

“The Federal Budget confirms the growing likelihood of economic dark days ahead that Treasurer Jim Chalmers has been warning about since taking office,” Bassanese said.

“Ultimately, this outlook leaves little room to hide for investors.”

Bond market may provide some holiday joy

Bassanese said while the bond market has provided little joy so far this year, the economic backdrop does give investors hope of attractive value once yields peak, perhaps by year’s end.

In this climate, investors might look to more defensive exposures to protect their portfolios from ongoing volatility in global markets.

Inflation has jumped to 7.3% over the year to September, its highest level since 1990. Trimmed-mean inflation, the RBA’s preferred measure that trims away large price movements, rose 1.8% in the quarter and 6.1% annually suggesting inflation throughout the economy is broad-based.

Spiking inflation increases the odds of a Melbourne Cup Day rate rise being much higher as the RBA moves to bring inflation back to its target of 2-3%.

3 megatrends that could benefit from budget

Chalmers delivered his first budget since being elected in May with a five-point plan to address higher costs of living via reduced childcare costs, expansion of paid parental leave, cheaper medications, more affordable housing, and getting wages rising.

Bassanese said for investors seeking out longer-term buying opportunities in more thematic exposures, the Federal Budget demonstrated the direction of travel for three megatrends reshaping the global economy.

1. Electric vehicles

Bassanese said the budget revealed a significant investment to facilitate the adoption of cheaper and cleaner transport.

“The new Driving the Nation Fund contains a range of measures to increase uptake of electric vehicles as demand for emissions-free transport continues to grow,” he said.

“This package follows the recent passage of the Inflation Reduction Act in the United States which among other things contained a number of measures to increase adoption of electric vehicles.”

Stocks to watch

Novonix (ASX:NVX)

Market Cap: $1.40B

NVX specialises in resources for lithium-ion batteries used to power electric vehicles, mobile phones and energy storage units. NVX is building its first 10,000tpa plant for battery-grade synthetic graphite, deploying a process it says delivers a 60% reduction in carbon intensity relative to traditional Chinese synthetic graphite.

The company will receive a grant of US$150m for a new plant in Chattanooga to produce 30,000tpa for EV makers.

RECTIFIER TECHNOLOGIES (ASX:RFT)

Market Cap:$54.45

RFT specialises in developing and manufacturing high-reliability and high-efficiency power conversion products.

In August 2021, it launched its first two-way electric vehicle (EV) charger “vehicle-to-grid” (V2G), allowing homes and businesses to not only charge an EV but also sell excess power back to the grid.

The NVX & RFT share price today:

BetaShares Electric Vehicles and Future Mobility ETF (ASX:DRIV) offers exposure to a portfolio of global companies at the forefront of innovation in automotive technology.

2. Clean energy

The Federal Budget provided funding to facilitate more deployment of cleaner forms of energy into the national energy grid.

“The Government’s Powering Australia package will fund community batteries and community-scale solar initiatives to improve access to cleaner energy,” Bassanese said

“Further, the Federal Government’s Rewiring the Nation package is also aimed at modernising Australia’s energy grid and unlocking more renewable energy.

Stocks to watch

ReNu Energy (ASX:RNE)

Market cap: ~$16.77m

A big player in the small-cap hydrogen space, and otherwise known as a clean energy incubator, RNE has a portfolio of four companies.

RNE recently acquired Countrywide Hydrogen, a developer of four renewable hydrogen projects – two in Victoria and two in Tasmania.

RNE is a pick of Peak Asset Management which reckons investors get a great deal of exposure to cutting-edge technology in the clean energy space.

FRONTIER ENERGY(ASX:FHE)

Market Cap:~$103m

FHE recently completed a $10m placement at 42 cents/share to accelerate the development of the Bristol Springs Green Hydrogen Project in WA’s southwest.

Funds will be used for early works at the project site, hydrogen refueling station development, energy storage, and system security (Hydrogen Peaking Plant) studies as well as for general working capital.

The RNE & FHE share price today:

BetaShares Climate Change Innovation ETF (ASX:ERTH) and BetaShares Solar ETF (ASX:TANN) along with the VanEck Global Clean Energy ETF (ASX:CLNE) are among ETFs in the clean energy sector.

3. Critical minerals

As Stockhead’s Lithium Queen Jessica Cummins reported, critical minerals are best described as minerals essential for modern tech but they’re at supply chain risk.

Bassanese said the Federal Government has upped its support for local critical minerals production.

“Recognising that critical minerals, such as those required for the ongoing energy transition, are in both strong demand and structurally constrained – the Federal Government has funded a series of measures to support this industry,” he said.

Stocks to watch

In the critical minerals sector there is no shortage of stocks.

Allkem (ASX:AKE)

Market cap: ~$9.25 bn

AKE has two sizeable assets, a lithium brine and borax operation in Argentina and a hard-rock operation in Australia.

By 2025, the company is earmarked to be one of the world’s five largest lithium chemical producers. The AKE share price is up ~30% year to date.

Leo Lithium (ASX:LLL)

LLL was established in 2021 as a spin out of the Firefinch (ASX:FFX) Goulamina Lithium Project in Mali, which will be West Africa’s first spodumene producer once it comes online in 2024.

Backed by Gangfeng, one of the world’s largest lithium manufacturers, Petra Capital recently put a $1.85/share price target on LLL, which is up ~27% year to date.

The AKE & LLL share price today:

In terms of critical minerals ETFs in the coming days the BetaShares Energy Transition Metals ETF (ASX:XMET) is due to launch. Global X Green Metals Miners ETF (ASX:GMTL) was also launched this week.

At Stockhead, we tell it like it is. While Frontier Energy is a Stockhead advertiser, it did not sponsor this article.

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.