Solar Stocks Slide as Chinese Economy Appears to Slow

Joel Anderson  |

Solar stocks were broadly down on Monday as the entire segment appeared to lose ground. The slip caused the Guggenheim Solar ETF (TAN) to lose 1.56 percent on the day, with losses as high as 4.4 percent in the late morning prior to rebounding before close.

The sell-off appeared to be part of a broad, market-wide slip after news that Chinese manufacturing had slowed again. The flash Markit/HSBC Purchasing Managers' Index (PMI) dropped to 48.1 in March, a sign that manufacturing was shrinking (any reading below 50 demonstrates contraction, while any reading above 50 means growth) and its lowest level in over eight months.

As is typical for the segment, the stocks were mostly trading as a monolith, with a number of different companies sliding.

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The Elon Musk-chaired SolarCity  (SCTY) lost 3.8 percent, JA Solar Holdings  (JASO) was down 4.8 percent, Yingli Green Energy (YGE) fell 2.94 percent, Canadian Solar (CSIQ) was off 6.03 percent, and Trina Solar Limited (TSL) was the day’s big loser as it shed 8.85 percent. Industry leader First Solar  (FSLR) , though, managed to buck the trend by gaining 0.65 percent.

The news about Chinese manufacturing would likely affect solar more than other industries as Chinese companies are prominent players and the nation represents an important growth market for the technology.

In addition to the day’s broader sell-off, solar stocks could very well be collectively due for a pull back. The growth for the solar industry has been tremendous over the last two years, with as much solar capacity installed in the United States in the last 18 months as had been cumulatively built prior to that period.

Since finding a bottom in November of 2012 in the midst of a market glutted by cheap Chinese panels, solar stocks have been on a massive bull run that has seen the Guggenheim Solar ETF triple in value since that point. Give this sort of incredible increase in valuation, solar stocks may begin to see a pull-back even as they find success. In short, the market may be determining that its already priced a considerable amount of growth in and the current valuations throughout the industry may be a touch too “sunny.”

If that’s the case, it could mean that 2014, while projected to be a strong year for solar companies, could be a relatively rough one for solar stocks.

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