All Eyes On Policymakers: Policy Effects On Nuclear Equities

Includes: NLR, URA
by: NEIG

Nuclear equities have moved in a narrow range in recent months. Nuclear Energy ETF (NLR) and Global X Uranium ETF (URA) rose from the lows of the summer but gave back some of their gains in the last several weeks. Escaping this range to the upside will require supportive macro environment, positive industry news and, perhaps most importantly, more clarity on nuclear energy focused public policy initiatives worldwide.

While public policy always played an important role in the world of nuclear energy, post Fukushima accident nuclear market dynamics have become increasingly dependent on the actions of policymakers around the world:

In Japan, the national debate on the future of nuclear energy continues. According to The Asahi Shimbun, growing anti-nuclear sentiment in the world's third-largest economy could force the government to adjust its long-term energy policy toward a smaller role for nuclear energy. In a recently conducted poll, 58% of respondents favored scrapping nuclear power generation within a decade. This puts a substantial pressure on Noda's administration ahead of potential elections later this year. Unless the national sentiment in Japan unexpectedly changes, a full return to nuclear power is becoming an increasingly unlikely scenario.

In France, the most nuclear-dependent country in the world with 75% of its energy coming from nuclear, the national debate on the future of nuclear power is yet to begin. Earlier this year Socialists promised to reduce the share of nuclear in French electricity production to 50% by 2025. But so far, only one nuclear reactor is due to be decommissioned. In a controversial statement earlier this week a member of the French government, Arnaud Montebourg, referred to nuclear power as "energy of the future." Whether the new French administration delivers on its pre-election promise or reverses its views in favor of nuclear will be highly influential in determining the future outlook of global nuclear power.

While China seems to be committed to the long-term commercial nuclear development program, the pace of this development remains unconfirmed by the Chinese government. With 26 reactors under construction, additional clarity on the nuclear development program from Chinese policymakers could be a strong factor in boosting investor confidence.

Without further clarity on public policy initiatives affecting nuclear energy in Japan, France, China, and other countries the overhang of uncertainty will continue to contribute to elevated risk premiums on nuclear equities.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.