Chinese projects to benefit infrastructure

A recent pick-up in activity for the Chinese government’s interlinking trade deals and infrastructure projects could offer long-term opportunities for investors, according to a specialist global listed infrastructure manager.

Developments for the One Belt, One Road (OBOR) initiative were relatively slow in 2015/16 mainly due to China’s capital control and currency concerns, but the pace has improved recently with the financial support of Asian Infrastructure Investment Bank and other banks, according to RARE Infrastructure.

“This is an important foreign trade policy and economic strategy that seeks to redevelop the historic Silk Road trade route that runs from China through to Europe,” RARE portfolio manager Charles Hamieh said.

“Projects relevant to OBOR include railways, roads, ports and energy infrastructure. Given the size of this investment, the economic benefit from OBOR-related investments may be relatively more material to other developing countries in South-East Asia than China.

“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.”

Hamieh said infrastructure assets are set to be one of the greatest beneficiaries of all the long-term trends driving emerging markets as they give direct access to emerging markets’ domestic demand and drivers, while creating underlying revenues that are more defensive due to their contracted and regulated nature, with explicit inflation linkage.

“We believe the key economic objective of OBOR in the medium to long term is to diversify China’s current export markets,” he noted.

“An important near-term collateral benefit is the creation of awareness to absorb any overcapacity in the commodity sector, specifically steel and cement.

“In addition, the engineering and construction sector, such as producers of rail equipment and machinery, could also gain meaningfully with new overseas orders.”

Listed infrastructure company China Merchants Port Holdings (CMP) is a current holding in all three of RARE’s actively managed strategies and is strategically positioned to benefit from China’s push for the OBOR initiative and Free Trade Zones Policy.

CMP is China’s largest port operator across the country’s five major port regions and has exposure to eight of China’s 10 largest ports, including Shanghai and Shenzhen.

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