According to global listed infrastructure investment manager RARE Infrastructure, an investment bank-led uptick in the Chinese government’s One Belt, One Road (OBOR) infrastructure policy could be good news for investors.
Noting that development in the initiative was soft in 2015-16, thanks to Chinese currency and capital control returns, portfolio manager Charles Hamieh said financial support from the Asian Infrastructure Investment Bank (AIIB) contributed to the pick-up in development.
With this in mind, he said the size of OBOR, which includes railways, ports, roads and energy infrastructure, will see the economic benefit of related investments more significant for developing countries than China.
“Outside China, and in the near term, major beneficiaries of OBOR may be seaports along the Maritime Silk Road, such as in south-east Asia (such as Myanmar), south Asia and east Africa,” he said
“While OBOR has a limited impact on global listed infrastructure in the medium term, we believe that there are several long-term investment opportunities within the broader emerging market space.”
Mr Hamieh said the key goal of OBOR is to diversify China’s current export markets, and a significant near-term benefit is boosted awareness to absorb overcapacity in the commodity sector.
“In addition, the engineering and construction sector, such as producers of rail equipment and machinery, could also gain meaningfully with new overseas orders,” said Mr Hamieh.
“Listed infrastructure company China Merchants Port Holdings (CMP), a current holding in all three of RARE’s actively managed strategies, is strategically positioned to benefit from China’s push for the OBOR initiative and Free Trade Zones (FTZ) policy.
“CMP is China’s largest port operator across China’s five major port regions and has exposure to eight of China’s 10 largest ports including Shanghai and Shenzhen, which are amongst the global top three.”
He said infrastructure assets will be “one of the greatest beneficiaries of all the long-term driving markets”, as they provide direct access to domestic demand in these emerging markets.
Concluding, Mr Hamieh argued that these assets also create more defensive underlying revenues as a result of their contracted nature with explicit inflation linkage.