Infrastructure Projects Like Road Building Are Strongly Encouraged.; infrastructure-projects-are-driven-by-governments
Articles

Infrastructure Is More Than Building Roads – Where Investing Pays Off

A global wave of new infrastructure programs has captured the attention of investors. From India to the USA, governments have turned to infrastructure spending as a means to stimulate domestic economic growth. Investing in transport infrastructure is now the trend. Where investing your money also pays off.

The need for infrastructure spending is clear, as is the political will to invest in infrastructure projects. Investors also appear ready to allocate capital to infrastructure spending. However, it is challenging for investors to find ways to benefit from such opportunities.

As the first direct beneficiaries of transport infrastructure spending have seen equity values price in heady expectations for future earnings growth. In addition, it is worthwhile to focus your attention on companies with regard to residential construction and energy infrastructure, which take second place among beneficiaries.

Infrastructure As a Tool for Economic Policy

Infrastructure is an investment theme that is likely to gain interest in capital markets. The rationale is that the effects of unconventional monetary policy are wearing off, and there is an increasing consensus that a mix of expansive monetary policy and fiscal policy is needed to get out of the global gloom trap.

Investors should consider having infrastructure-related exposures in their portfolios. After all, infrastructure investments typically lead to job creation. Moreover, they are a strong economic multiplier, leading to productivity gains. With real rates in many parts of the world still negative, the environment is ideal to fund infrastructure projects.

Investing Money with a Focus on Infrastructure

There are multiple ways to gain exposure to infrastructure investments, depending on investors’ risk appetite and tolerance of illiquidity. The most straightforward route for private investors is to focus on sectors and companies that would benefit from a
policy focus on infrastructure, screen them against their company fundamentals and invest in those stocks that screen attractive.

This strategy has worked well. The Trump administration’s pro-growth policy plans have given infrastructure equities a material boost in recent months.

the-areas-that-offer-the-most-potential-are-housing-and-transport-as-well-as-energy-and-water

Opportunities in infrastructure assets (Bubble size represents aggregate spending over the next decade) 

Source: Mc Kinsey Global Institute, Credit Suisse
The areas that offer the most potential are housing and transport as well as energy and water.

Infrastructure Trend Continues

Investments in equities of publicly-listed infrastructure companies are still attractive, whereby it should be noted that the USA plays only a small part of a global trend. China, for example, spends around CNY 9 trn (USD 1.3 trn) a year on infrastructure. However, valuations of most equities exposed to infrastructure spending now largely capture the potential, and further investing requires a focused approach.

Potential exist for various types of infrastructures pending, in particular transport infrastructure, affordable housing and energy infrastructure. Direct equity participation in commercial infrastructure projects is particularly interesting for long-term institutional investors like pension funds. However, specialist knowledge is key given several risks and challenges.

Key Findings for Investors on the Infrastructure Trend

Credit Suisse believes the key beneficiaries of this supertrend are:

  • materials suppliers, large-scale cement and aggregate producers, steel companies, construction equipment and component suppliers 
  • gas and electric utilities, power generation facilities, transmission and distribution pipelines, smart grids, water sanitation and desalination facilities 
  • rail-based local transport systems, pre-fabricated parts producers, alternative low cost building materials producers, companies providing insulation, efficient heating and air-conditioning systems 
  • emerging market national mortgage corporations and covered bond issuers