Learn more about market trends Infrastructure – Focus on transport

Infrastructure – Focus on transport

May 2019

Late last year, G20 leaders agreed to promote infrastructure as an asset class. Their goal is to attract more private capital to help close the substantial need for investments in infrastructure, a gap that the Global Infrastructure Hub expects to rise to USD 14.8 trillion by 2040. The topic of infrastructure in general should attract attention in 2019, as two catalysts for transport infrastructure projects are emerging: First, China’s Belt and Road initiative (BRI) is pushing into Europe, which will likely spur more project investments in the region. Second, recent bipartisan support for a larger-than-expected infrastructure bill in the USA could lead to significant transport infrastructure construction there.

China’s BRI makes inroads in Europe

At the end of April, China hosted the second Belt and Road Forum, which attracted 37 world leaders and delegates from 150 countries and 90 international organizations, a much larger gathering than the first one in 2017. China took the opportunity to address recent concerns by several African and Asian countries that its infrastructure plan often creates high debt levels for its host countries. China suggested several improvements for the BRI, including a sustainable lending framework that takes into consideration a country’s complete debt servicing capabilities, an emphasis on green project developments and the opening of its domestic markets.

Moreover, a recent change in the Malaysian government’s stance appears to support a more accommodative view toward the BRI. After an almost one-year halt, Malaysia resumed construction of the BRI-related East Coast Rail Link project after China agreed to cut construction costs by a third to USD 10.7 billion. Support for the BRI now also seems to come from more Western countries, which were initially split about promoting the initiative. After Portugal and Italy pledged their support, Switzerland recently expressed an interest in getting involved in BRI projects. Overall, more than half of the EU 28 countries have now signed bilateral endorsements. Together with sustainable lending standards, these endorsements should give an important push to the BRI.

US infrastructure bill in the making

In the USA, infrastructure has moved back into the headlines as well. According to recent media reports, Democratic congressional leaders and US President Donald Trump have agreed to seek a deal on a USD 2 trillion infrastructure spending package, twice the initially estimated amount. The proposed package would include funds to build and repair roads, bridges and water projects along with investments in broadband and the aging power grid. The next step will be to determine the funding for this much bigger than-expected transport infrastructure program.
 All of these promising developments further strengthen our conviction in our Supertrend “Infrastructure – Closing the gap.” We believe the time is right for investors to consider this long-term theme.

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