Infrastructure to remain a key pillar of stimulus to boost economic growth post COVID-19 in Emerging Markets

From

Charles Hamieh

The recent fall in the stock market is providing one of the best opportunities to invest in Emerging Markets (EM)  listed infrastructure, notes RARE Infrastructure’s Senior Portfolio Manager, Charles Hamieh.

In a recent investor presentation, Mr Hamieh analyses the thematics in Emerging Markets and the key drivers of EM infrastructure in the COVID-19 environment.

He notes:

  • COVID-19 crisis has hit Developed Markets more severely than expected since late March relative to Asia – where most countries have initiated adopting preventive measures earlier as infection spread. Asian EM equity markets have also started pricing in COVID-19-related risks earlier in the year as confirmed cases spiked.
  • Invest in EM to capture secular themes underpinned by strong government objectives and agendas, which are unlikely to be derailed by COVID-19 response even if facing any short-term delay.
  • Most EM utilities with strong balance sheet positions and defensive cashflows have been sold off together with the market indiscriminately, even with limited risk to commodity price volatility and or volume downside.
  • Draconian containment measures in China from late January have quickly brought pandemic under control, to facilitate industrial activity resumption from March; also supporting near-term growth of Asian economies closely linked to China’s supply chain.
  • Long-term growth prospect for both utilities and infrastructure is stronger in EM than DM; need for stable and reliable supply of water, electricity, and other essential goods/services has been especially pronounced during recent months of lockdown across countries.

The  RARE Emerging Markets Strategy is  invested in high-quality companies benefiting from structural drivers, with strong cash flow and dividend yields.

Mr Hamieh notes: “We have strong conviction in the long-term opportunities within Emerging Markets listed infrastructure. At the regional level, the Strategy is split between Asia Pacific EM (70%) and Latin America (26%) with the remainder in cash. At the sector level, the Strategy is split between economically sensitive user-pay assets (36%) and regulated utilities (60%).”

Read the detailed presentation.

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