Our Underperform recommendation on AES Corporation (AES) takes into account the significant international presence of its fossil fuel power plants in several emerging markets, thereby exposing it to both foreign currency and political risk.

The company’s predominantly long-term contracts preempt any rate base growth in the near term for its regulated utilities. Also, with lower electricity demand due to a tepid global economy, the fate of spot wholesale markets is not encouraging.

As a result, we expect shares of AES Corporation to Underperform the broader equity markets in general and the utilities and merchant generators in particular.

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