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Can Solar ETFs' Bull Run Be Sustained?

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Solar ETFs have made strong gains on news that Argentina is planning to ramp up its use of solar power.

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Editor's Note: This content was originally published on Benzinga.com by The ETF Professor, Benzinga Staff Writer.

While the sector still has its detractors, there is no getting around the fact that 2013 has been quite kind to solar stocks and the ETFs that house them.

Buoyed by an array of factors ranging from China doing everything in its power to prop its ailing solar companies, to Warren Buffett's Berkshire Hathaway (NYSE:BRK.A) acquiring a stake in a solar project to takeover rumors, solar stocks have soared.

Heading into Tuesday's trading session, the Guggenheim Solar ETF (NYSEARCA:TAN) was up 21.1 percent year-to-date while the rival Market Vectors Solar Energy ETF (NYSEARCA:KWT) was up nearly 21 percent. Tack another approximately four percent onto each as KWT and TAN are soaring today on news that Argentina is planning to ramp up its use of solar power.

The South American nation is planning to increase solar capacity as much as 35-fold as part of a government plan to get 8 percent of the country's power from renewable sources by 2016, according to Bloomberg.

Arguably lost in today's ebullience surrounding solar stocks and ETFs are the strings attached to dealing with Argentina. That is to say takeover rumors and China providing much-needed financing to its solar firms are perhaps more pure, plausible catalysts for a solar rally than anything involving Argentina.

Indeed, Argentina's solar plans are ambitious. However, this is still Argentina that is being discussed. The same Argentina that sits on the brink of its second sovereign debt default this century.

Moreover, this is the same Argentina run by President Cristina Fernandez de Kirchner who has shown a penchant for nationalizing companies and an overt hostility toward foreign firms doing business in her country. Those are among the reasons the Global X FTSE Argentina 20 ETF (NYSEARCA:ARGT) plunged last year and why the country is at risk of losing its frontier market status.

To be certain, Argentina could use increased solar investments to spur its flailing economy. Economic activity there expanded just 1.9 percent last year compared with an 8.9 percent increase in 2011.

However, this is still Argentina. The same country that claimed inflation of 11.1 percent, but was censured earlier this month by the International Monetary Fund because some private economists believe the real rate of inflation there is 26 percent.

Argentina may be talking a good game when it comes to solar energy, clearly enough to boost KWT and TAN, but that does not mean doing business there is easy. Now South America's third-largest economy behind Brazil and Colombia, Argentina's 2012 corruption index rating was 102, according to Transparency International.

Here are some of the countries Transparency International rated as less corrupt than Argentina: Malawi, Swaziland, Suriname and Djibouti. South American rivals Colombia and Peru were also ranked ahead of Argentina.

Bottom line: Fighting the uptrend in KWT and TAN this year has proven perilous and it is clear the market views the Argentina as efficacious for these ETFs. On the other hand, today's rally might be overdone given the risks that come with doing business in Argentina.

Below, find some more great ETF and market content from Benzinga:

5 Classic Email Scams and How to Avoid Being a Victim

Is Inflation Around the Next Corner? Then What?

American Eagle Flies High on Barron's Mention


Twitter: @Benzinga

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No positions in stocks mentioned.

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