Global investment manager backs real assets in 2017

By Jack Derwin

December 22 2016
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A global investment manager has made their predictions for the coming year’s investment markets, signalling real assets will lead the charge in the New Year.

Interest in infrastructure will continue to build on last year [link] as the 'lower for longer' environment persists, according to AMP Capital global head of infrastructure equity Boe Pahari.

“We expect infrastructure pricing trends in 2017 will continue to reflect the investor hunt for yield. In a ‘lower for longer’ interest rate environment infrastructure assets where cash yield as opposed to capital growth constitutes a high proportion of return will continue to be highly priced, particularly in the core infrastructure space,” Mr Pahari said.

As nestegg.com.au has reported previously, India is amongst a number of emerging markets exciting infrastructure investors in 2017.

“India’s current government is looking at infrastructure in a fresh and dynamic way, Indonesia continues to evolve in the infrastructure space, Thailand has been focused on developing infrastructure for some time now and, of course, China’s investment is significant,” Mr Pahari explained.

“[However] we believe the best value will be found in the Mediterranean markets and Scandinavia in Europe, parts of North America, and emerging markets such as Latin America and Asia should not be ignored,” he said.

“Our focus remains on the mid-market, with sector, geography and ticket size the three key elements we consider in the search for high-quality assets.”

The surprise election of Donald Trump to the White House is expected to support infrastructure investment, according to AMP Capital head of global listed infrastructure Giuseppe Corona.

“The election of Donald Trump as president of the US was positive for North American infrastructure companies, particularly in the energy infrastructure sector as President-elect Trump is more supportive of further domestic fossil fuel production and favours reducing regulations, which should provide a tailwind for energy infrastructure companies’ capital expenditures programs,” Mr Corona said.

Within the space, Mr Corona said there was one particular sector that stood out in the infrastructure space.

“We believe that the energy infrastructure sector represents one of the most attractive sectors within listed infrastructure, given the dislocation between price and fundamentals in 2015/16, which has created an opportunity to increase the allocation to higher quality companies,” he added.

The other major asset class to watch in 2017 is real estate, especially commercial property, according to AMP Capital global head of property Carmel Hourigan.

“The 'lower for longer' thematic and continued volatility in global capital markets has seen this real estate cycle potentially extended a little longer and we see compelling risk-adjusted returns delivered out of the Australian market in 2017, particularly on a relative basis globally. Sydney office markets would be our top bet during the next 12 to 36 months, followed by Melbourne office,” Ms Hourigan said.

“High quality regional shopping centre assets will continue to perform strongly and defend against structural retail headwinds. Recent developments completed during the past few years at Macquarie Centre in Sydney and Pacific Fair on the Gold Coast are prime examples of what the future shopping centre must look like in order to succeed, and our investors have benefited from these significant investments,” she added.

Looking ahead, AMP Capital head of global listed real estate James Maydew said that real estate carried good fundamentals that would support growth in 2017.

“We see the real estate market to still present many of the Goldilocks characteristics it has maintained over the last five or so years,” Mr Maydew said.

“[These include] low relative construction supply, strong demand as the wall of global institutional capital continues to chase higher real estate locations, access to credit - although the cost of debt is rising, it is at a considerably lower cost to historical levels - [and] robust fundamentals from tenants.”

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