Global infrastructure investment – the Trumponomics push
Infrastructure development plays an important role in enhancing a country’s productivity, boosting its growth potential, creating jobs and improving the citizens’ quality of life. According to PwC and Oxford Economics global infrastructure spending is expected to increase at a healthy CAGR of 5% in FY15–20 to USD 5.3 trn, well above the 2% growth expected in FY16. Steady population growth and increased urbanisation are the major drivers of higher infrastructure spending. Further, the emergence of the public–private partnership (PPP) model and greater involvement of private entities in infrastructure building has provided an additional impetus to infrastructure spending globally.
In Asia-Pacific, China is poised to lead the infrastructure spending through its One-Road-One-Belt (OROB) initiative, which aims to connect countries located on the Silk Road Economic Belt and the 21st Century Maritime Silk Road in order to increase economic cooperation, boost regional trade and promote social and cultural cooperation. Apart from domestic funding from Chinese companies and financial institutions, the initiative has also attracted foreign investments. The Chinese government has already launched >1 000 PPP projects worth ~USD 318 bn under the OROB programme, which should attract multiple private infrastructure developers. Moreover, the ongoing structural reforms in India and Indonesia offer attractive investment opportunities in these growing economies. As per the IMF, India and Indonesia will grow at 7.6% and 5.3% respectively, in 2017. India and Indonesia are also witnessing rapid urbanisation with urban population representing ~33% and ~54% of total population respectively, in 2015.
In the European region, the European Commission (EC)’s Investment Plan for Europe (also known as Juncker’s Plan after the EC President Jean-Claude Juncker) is driving the infrastructure spending in the 28 member states. Encouraged by the initial success of the plan, the EC recently increased the funding and duration (through the European Fund for Strategic Investments) of the plan from EUR 315 bn by 2018 to at least EUR 500 bn by 2020. Further, the EC aims for a EUR 630 bn investment by 2022. The expected economic recovery in the region should support EC’s plan and drive the infrastructure investment across all member states. Presidential elections will be held in two key markets in Europe viz. France and Germany and developing better infrastructure appears amongst top priorities for all candidates. The demand for infrastructure spending in the Euro area is expected to remain strong due to high traffic growth on road networks and airports.
The US President-elect Donald Trump’s USD 1 trn plan to improve the country’s highways, bridges, tunnels, schools, airports, hospitals etc. is seen as a major boost to the government’s infrastructure spending in the country. Tax credits and reduced regulatory red-tape promised by him during his campaign should encourage private investments in infrastructure projects. Additionally, the Obama administration had passed the federal law, Fixing America’s Surface Transportation (FAST) Act in December 2015, which would provide long-term funding for improving surface transportation infrastructure. The FAST Act authorised an amount of USD 305 bn to be spent during 2016–20 over public transportation, highway, motor vehicle safety, research, motor carrier safety, technology, hazardous materials safety, rail and statistical programmes. We are positive on President Trump’s infrastructure investment plan and believe that it would substantially increase public and private funding towards the sector in the long-term.
We are optimistic that the listed programmes across regions would spur infrastructure spending globally and in turn benefit all infrastructure-related sectors in the coming quarters. In that context, we offer a basket of stocks from the Electrical Equipment, Transportation, Machinery, Construction and Engineering, Construction Materials and Utilities sectors which we believe would be amongst the major beneficiaries of this trend.
Data & recommendations as of December 26th, 2016 close
This document is an objective and independent explanation of the content of the recommendation and cannot be considered as adapted to a person or based on the analysis of the situation of a person.