Infrastructure likely centrepiece of fiscal stimulation globally
In an environment of ‘lower for longer’ interest rates, Australian based global listed infrastructure manager RARE Infrastructure expects infrastructure to be the centrepiece of several governments efforts stimulate their economies, thereby presenting investor opportunities.
RARE Senior Portfolio Manager Charles Hamieh said the decelerating global growth of 2018/19 could be seen as a late- cycle pause rather than a precursor to recession.
“We think the market has been too pessimistic for growth prospects in 2020,” Mr Hamieh said.
“As the likelihood of recession diminished we saw a cycling from defensive stocks to growth and value and we expect this trend to continue at least till mid-2020.
“Lower inflation and lower interest rates could lead to a further expansion of earnings multiples for equities including listed infrastructure.
“There is now a general acceptance that monetary policy has become less effective and that central banks don’t have the levers to offset a large downturn.
“Political uncertainty and a shift to nationalistic policies has created uncertainty for corporates and delayed investment decisions.
“Luckily, infrastructure has been spared this scepticism as regulators continue to approve projects, driving near record asset base growth and giving certainty to future earnings growth across the sector.
“One of the key drivers for infrastructure is likely to be the increasing focus on ESG principles (Environmental Social and Governance) and we predict the US election will likely see ‘green’ infrastructure programs gain momentum.
“Global initiatives to reduce carbon emissions are resulting in local actions to support the further development of renewable energy and the drive toward greater electrification.
“Governments are setting targets for electricity sourced from renewable energy – EU 32% by 2030, California 60% by 2030, Virginia 0% carbon by 2050 – and the Bloomberg New Energy Finance researchers expect 80% of new capacity growth through 2050 will come from renewables.
“Meanwhile, significant capital is being spent to mitigate the effects of climate change and adapt networks and infrastructure to cope with more volatile climatic events, such as ice storms and wildfires.
“There is a movement to increase the efficiency of infrastructure, for example through the development of electricity storage, and in the reduction of wastage, such as from leaking pipes in water networks.
“All this is driving near-record rate base growth across the sector thus presenting and increasing quantum of investment opportunities,” said Mr Hamieh.
