Trash Is King as China's Garbage Stocks Surge on Waste Plans

(Bloomberg) -- Trash is cash -- at least for investors in China’s environment sector.

Garbage treatment and recycling-related stocks are rallying, revived by new guidelines requiring more stringent sorting and waste treatment in large cities.

Kitchen waste treatment firm WELLE Environmental Co. is on track for a record two-day gain, rising 18%. Refuse vehicle maker Fujian Longma Environmental Sanitation Equipment Co. is heading for a 32% advance over the past five days, while recycling firm Tus-Sound Environmental Resources Co. is up 16% this week.

The moves contrast with recent declines. Tus-Sound dropped 13% in May after a 27% plunge in April, while WELLE also fell in the last two months. Analysts say the sudden gains are more than just speculative, as the fate of the environmental protection industry depends on policies.

The most prominent theme in the guidelines issued last week is a drive to better separate wet from dry waste, spurring demand for equipment with better seepage prevention, said Liang Chen, analyst at China Development Bank Securities Co. in Beijing.

This would benefit garbage treatment equipment firms, while also helping incineration companies as segregating wet garbage will increase burning efficiency, she said, adding that recycling firms will save costs in the sorting process.

"The industry is still awaiting clearer guidelines on a local level," Liang said. "But investors are clearly getting excited after share prices have been in the doldrums for so long."

To contact Bloomberg News staff for this story: April Ma in Beijing at ama112@bloomberg.net;Mengchen Lu in Shanghai at mlu157@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, David Watkins, Philip Glamann

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With assistance from Bloomberg