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How events in 2020 are likely to spur on infrastructure growth
The COVID-19 pandemic and the US election are two key events that are likely to spur on infrastructure spending, which could be a catalyst for the asset class, an expert has revealed.
How events in 2020 are likely to spur on infrastructure growth
The COVID-19 pandemic and the US election are two key events that are likely to spur on infrastructure spending, which could be a catalyst for the asset class, an expert has revealed.
During a Bennelong presentation, 4D global portfolio manager and chief investment officer Sarah Shaw explained how infrastructure assets have shown their defensive characteristics despite share price falls.
“COVID-19, as we all know, pushed a generally robust global economy into recession and saw the global equity market collapse,” Ms Shaw said.
“As an equity, listed infrastructure was not immune to the COVID-19 market sell-off.”
“Unfortunately as yet, infrastructure has not participated in the market bounce, and we believe this has created a very attractive buying opportunity in the global listed infrastructure market.”
Ms Shaw points to earnings of the asset class, which have been far more resilient than the sell-off implies.
“The asset class has proven its defensive characteristics, presenting strong earning momentum, underpinned by strong balance sheets, and we believe it’s only a matter of time before the market recognises this,” she said.
With the pandemic likely to linger through until 2021, Ms Shaw said a subsequent economic recovery will take longer as it is dependent on the health outcomes.
However, she noted that much of the fiscal support is targeted at infrastructure spending.
“The huge fiscal and monetary stimulus is still to be fully felt in economic terms, and a big chunk of that spending is focused on badly needed infrastructure spending, including the energy transition,” she said.
“So, once we move past the worst impacts of the virus and we see the economy return to a more stabilised environment, infrastructure in all its forms will be essential to the global economic recovery and returning society to a new normal.”
Ms Shaw pointed to studies which show that for every $1 of infrastructure investment, an economy gets a boost of anywhere between $3 to $5.
“In fact, at 4D we believe there is no global economic growth recovery without roads and rail, ports, airports, pipelines, power transmission networks and communication infrastructure,” she said.
Ms Shaw said the second big event, the US election, is also likely to spur on infrastructure growth.
“The presidency of Donald Trump has been one of the most polarising in recent American history, and it led to an election that was of far greater significance than normal,” Ms Shaw said.
“What we have seen in a rare convergence of views is that there is an agreement between Republicans and Democrats that the US is in dire need of spending to upgrade ageing infrastructure, as well as investing in new infrastructure to support the future generations.”
“This is a clear positive for the sector as we believe the public sector spend will lead to greater private sector involvement irrespective of who finally claims the presidency.”
While disagreeing on the size, scope and target of fiscal spending, both Democrats and Republicans agree upon a need of fiscal support for the economy.
“However, with this further stimulus in the pipeline, we do believe there is further support for a solid global recovery in 2021,” Ms Shaw concluded.
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