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Solar ETF Rally: More Gas in the Tank


Put simply, the Guggenheim Solar ETF (TAN) and the Market Vectors Solar Energy ETF (KWT) have both more than doubled this year. That means TAN and KWT, in that order, are the two best non-leveraged sector ETFs in 2013.

TAN and KWT have gotten help from a variety of places. One day its First Solar (FSLR), the largest U.S. solar firm, chipping in. The next its Elon Musk’s SolarCity (SCTY) and on and on. [SolarCity a Big Deal for Solar ETFs]

However, the reason the jaw-dropping solar rally may have more life is another predictable suspect: China. At least that is the view of Deutsche Bank.

“Companies appear to be more bullish on 2014 demand expectations – most companies expect demand to reach 45GW next year with some companies such as YGE calling for 50GW demand estimate in 2014. China appears to be the big source of demand upside - companies expect at least 12GW and up to 15GW of demand in China in 2014,” the bank said in a note posted by Barron’s.

China, as it does for so many other ETFs, looms large for KWT and TAN. Amid lingering questions about demand and financing needs, Chinese solar stocks have spent their fair share of time in the dumps. That made KWT and TAN dreadful performers last year and sent both hurdling toward reverse splits to artificially inflate their price tags.

This year, China has stepped up to support its ailing solar companies, boosting TAN and KWT along the way. [10 ETFs With The Most Bang for Your Buck]

China demand expectations have improved over the past few months – most solar companies expect China demand to approach 8-9GW this year (vs prior est of 5-6GW) mainly due to a rush of solar installations in Western China where incentives are set to decline from RMB 1.0/kWh to 90c/kWh,” said Deutsche Bank according to Barron’s.

Deutsche’s top picks in the solar sector are Trina Solar (TSL) and Yingli Green Energy (YGE), a combined 9.3% of TAN’s weight. The stocks combine for just over 9% of KWT.

In numbers, this is why China is so important to solar ETFs: China and Hong Kong combine for almost 40% of TAN’s country weight while China and Taiwan combine for 45% of KWT’s weight.

Market Vectors Solar Energy ETF