A number of global trends are driving significant new infrastructure investment opportunities for investors, comprising both familiar and new themes, according to AMP Capital.
AMP Capital Core Infrastructure Fund portfolio manager John Julian said the rise of emerging Asian economies, climate change, technological disruption and the ageing demographic are among trends creating massive investment opportunities.
Julian highlighted that apart from transport infrastructure in China, India and south-east Asian economies, education-related infrastructure is likely to experience growth as a university education in an English-speaking developed country is highly regarded across Asia.
“Education is now Australia’s largest service export and this influx of international students is increasing the need for student accommodation attached to leading universities,” he said.
“This market expects a higher quality standard than traditional student housing, but its enhanced ability to pay gives rise to long-term, high-yield investments that provide protection against inflation.
“The emerging Asian middle class is also spending its new-found wealth on overseas travel – long-haul air travel in the Asia-Pacific region is forecast to grow in excess of 6 per cent per year over the next 20 years.”
Agreements for climate change and initiatives towards less pollution are also leading to the restructuring of the transport and energy sectors.
“Road congestion and pollution are leading to electric vehicles, greater experimentation with road charging, high-speed rail and the expansion of mass transit networks in large urban areas,” Julian said.
“Such developments require large-scale construction projects and/or the handling of large volumes of data.
“Climate change has also led governments to adjust the incentives that apply to energy supply in favour of renewables at the expense of fossil fuels.”
He said while wind, solar, hydro and tidal projects were now well established, they were likely to expand as their historic cost disadvantage continues to diminish.
Technological disruption is initiating a fourth industrial revolution as devices become automated and connected, he noted.
“The decentralisation of work, energy and service provision is leading to more home working, energy self-sufficiency and local/home delivery, however, these trends require ongoing investment in the data and logistical infrastructure required to support these lifestyle shifts,” he said.
Hybrid and electric cars and delivery trucks were already a common sight across developed countries and were another change to watch, he said.
Further, trends around the ageing demographic will lead to ongoing infrastructure capital expenditure as new facilities are established by both public and private sector providers.
“These major global structural themes are already emerging and can be expected to drive significant new infrastructure investment opportunities in a range of areas, including transport, energy, data and communications, and healthcare,” Julian said.
“While some of these opportunities, such as airports, will be quite familiar, others will be new, such as disruptive technologies.”
He revealed many of the opportunities will also be found in emerging economies.
“This will provide infrastructure investors with the potential for higher returns, but also subject them to higher risks, which highlights the importance of sound portfolio construction, good project selection and high levels of positive control, accompanied with strong asset management of investments,” he said.
