Kom meer te weten over marktontwikkelingen Infrastructure: Down but not out

Infrastructure: Down but not out

November 2018

2018 has been a difficult year for infrastructure as the sector has declined in absolute terms and underperformed the broader equity markets. We believe there are two reasons for this weak performance. First, trade tensions between the USA and China have weighed on investor sentiment for materials and construction companies, which depend on the free flow of goods as global suppliers for infrastructure projects. Second, rising interest rates in the USA and some Asian countries have increased the cost of financing infrastructure projects. As a result, the risk of project delays is growing and larger projects may even be canceled.

MSCI Infrastructure Index vs. US 10-year interest rate

MSCI infrastructure Index vs. US 10-year interest rate

Last data point: 07/11/2018. Historical performance and financial market scenarios
are not reliable indicators of current or future performance. Source: Bloomberg, Credit

Underlying fundamentals remain supportive

Despite these headwinds, the underlying fundamentals for the infrastructure theme remain intact: developed markets have to replace aging transport, electricity, water and telecom structures, while emerging markets need to build new projects to accelerate their economic development. The G20’s Global Infrastructure Hub still projects that the global infrastructure gap, which measures the shortfall between required infrastructure and the expected project developments at current investment levels, will widen to USD 15 trn by 2040. Therefore, we consider this year’s pullback of infrastructure-related equities a buying opportunity. A number of catalysts should shift the topic back into investor focus next year.

Possible catalysts for 2019

First, at the upcoming G20 meeting in Argentina, “Infrastructure for Development” is one of three agenda priorities, putting infrastructure into the spotlight at the global level. At the national level, individual countries are prioritizing various sub-themes (e.g. affordable housing in Germany, 5G telecom infrastructure roll-out in the USA and China, transportation in Mexico). Second, a bipartisan infrastructure bill may be an easy win for the newly divided US Congress as Democrats have signaled their support for it. In addition, greater fiscal control by the Democrat-controlled House could curb overly aggressive spending plans of the US administration, which should allay fears that interest rates may increase even more than expected. Third, a potential trade deal between the USA and China would improve global economic growth prospects and remove a big factor of uncertainty for infrastructure.

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