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The ongoing market volatility has copper-fastened the hedge funds' outlook towards power and energy stocks, which seems to be in the positive. According to weekend media reports, hedge funds are buying into power supplier Scottish & Southern Energy (SSE) in hopes of a bid for the company.

The latest fund to have bought shares is Centaurus, headed by Frenchman Bernard Oppetit. Centaurus has been joined at SSE by other hedge funds such as Lansdowne, GLG and Odey Asset Management. SSE is one of the few British electricity suppliers and generating firms not to have been acquired by foreign predators over the past decade, but now Vattenfall of Sweden and Eon of Germany are rumoured to be circling, and many hedge funds are taking a positive outlook towards the company as a bid before the end of the year looks likely.

At the same time, hedge funds investing in power markets are also doing well. Nine of 11 hedge funds investing in Europe's electricity, coal, natural-gas and emissions markets surveyed by Bloomberg News are in positive ground through July, a month in which power prices fell 17% and coal prices 13%. Energy Capital Management's MMT Energy Fund is up 19.18% through July, followed by Nordic Commodity Funds' Nordic Power Fund at 16.6%. Plenum Group's Plenum Power Fund is up 13.36%.

Analysts' predictions that gas and energy bills would have to rise also adds to the earnings potential of these companies, although how much of an increase is anybody's guess.

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