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Specialist in Asia Pacific, Japan, China, India and South East Asia and Global Emerging Market equities.

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Stewart Investors manage investment portfolios on behalf of our clients over the long term and have held shares in some companies for over 20 years. They launched their first investment strategy in 1988.

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Global Listed Infrastructure Monthly review and outlook

Global Listed Infrastructure Monthly review and outlook

A monthly review and outlook of the Global Listed Infrastructure sector.

Market review - as at January 2021

Global Listed Infrastructure gave up ground in January as a cautious mood prevailed in financial markets, despite the start of global vaccination campaigns. The FTSE Global Core Infrastructure 50/50 index fell -1.9%, while the MSCI World index^ ended the month -1.0% lower.

The best performing infrastructure sector was Pipelines (+6%), as robust North American hydrocarbon export volumes and improving commodity prices buoyed investor sentiment. Water / Waste (+1%) also ended the month in positive territory, on the enduring appeal of their defensive characteristics. The worst performing infrastructure sectors were Airports (-7%) and Toll Roads (-5%) as ongoing coronavirus lockdown measures weighed on passenger / traffic volumes, particularly in Europe and Latin America.

The best performing infrastructure region was Japan (+4%). The country’s electric utilities rallied due to a surge in wholesale electricity prices, and on speculation that Tokyo Electric Power (+47%, not in our focus list) may be allowed to restart one of its nuclear plants, which have been closed since the Fukushima nuclear disaster in 2011. Gains for Canada (+3%) reflected positive returns from its large-cap pipeline companies. The worst performing infrastructure regions were Europe ex-UK (-6%) and Latin America (-4%), owing to airport and toll road underperformance.

 

 

^ MSCI World Net Total Return Index, USD

All stock and sector performance data expressed in local currency terms. Source: Bloomberg.

Market outlook and strategy

The Portfolio invests in a range of global listed infrastructure assets including toll roads, airports, ports, railroads, utilities, pipelines, and wireless towers. These sectors share common characteristics, like barriers to entry and pricing power, which can provide investors with inflation-protected income and strong capital growth over the medium-term.

Toll roads represent the portfolio’s largest sector overweight. We believe these companies represent exceptional value at current levels. Traffic volumes have proved more resilient than those of other transport infrastructure assets; and toll roads are likely to be the first to see a return to normal demand levels as vaccine programs are rolled out. The portfolio is also overweight Towers / Data Centres. Exceptionally strong growth in 2020 from cloud computing leaders Amazon Web Services and Microsoft Azure provided the latest reminder that data mobility / connectivity needs are set to increase further in coming years, to the benefit of the towers and data centres.

A roughly neutral but large absolute exposure to Multi / Electric utilities has been maintained. The resilience and predictability of regulated utility earnings — along with the growth potential associated with the transition to renewables — does not appear to be fully appreciated by listed markets.

The portfolio is underweight the Airports sector. It remains to be seen how quickly consumer behaviour will return to normal. Business travel may never regain previous levels. The decision by Singapore and Hong Kong to delay the launch of an air “travel bubble”, originally scheduled for mid-November but now pushed back to 2021, serves as a reminder of the logistical challenges still facing the sector. The portfolio’s exposure is focused primarily on higher quality European operators. An underweight exposure to the Pipelines sector has also been maintained. While the sector has delivered robust gains in recent months, we remain conscious of the structural headwinds that these companies could face as Net Zero initiatives gather pace.

 

 

Source : Company data, First Sentier Investors, as of end of January 2021

Important Information

Investment involves risks, past performance is not a guide to future performance. Refer to the offering documents of the respective funds for details, including risk factors. The information contained within this document has been obtained from sources that First Sentier Investors (“FSI”) believes to be reliable and accurate at the time of issue but no representation or warranty, expressed or implied, is made as to the fairness, accuracy or completeness of the information. Neither FSI, nor any of its associates, nor any director, officer or employee accepts any liability whatsoever for any loss arising directly or indirectly from any use of this. It does not constitute investment advice and should not be used as the basis of any investment decision, nor should it be treated as a recommendation for any investment. The information in this document may not be edited and/or reproduced in whole or in part without the prior consent of FSI.

This document is issued by First Sentier Investors (Hong Kong) Limited and has not been reviewed by the Securities and Futures Commission in Hong Kong. First Sentier Investors is a business name of First Sentier Investors (Hong Kong) Limited.

Reference to specific securities (if any) is included for the purpose of illustration only and should not be construed as a recommendation to buy or sell the same. All securities mentioned herein may or may not form part of the holdings of First Sentier Investors’ portfolios at a certain point in time, and the holdings may change over time.

First Sentier Investors (Hong Kong) Limited is part of the investment management business of First Sentier Investors, which is ultimately owned by Mitsubishi UFJ Financial Group, Inc. (“MUFG”), a global financial group. First Sentier Investors includes a number of entities in different jurisdictions.

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