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 July 2020

Global Listed Infrastructure resumed its upward trajectory in July, aided by better than expected earnings for much of the asset class. The FTSE Global Core Infrastructure 50/50 index gained +2.9% in July, while the MSCI World index^ ended the month +4.8% higher.

The best performing infrastructure sectors were Multi-, Water and Electric Utilities (+5% to +7%) as solid earnings results highlighted the ability of these companies to weather a slowing economic environment. US electric utilities led the gains, after the release of an updated climate plan sparked hopes that already-substantial measures to roll out renewables may be accelerated under a Biden presidency.

The worst performing infrastructure sector was Airports (-9%), as the complications of reopening international travel while coronavirus cases remain widespread became increasingly apparent. Toll Roads (-3%) also lagged, despite steady traffic recovery in those cities that are successfully navigating coronavirus impacts.

The best performing infrastructure region was USA (+6%), reflecting strong demand for its substantial utilities sector. The worst performing infrastructure region was Japan (-13%) where a deteriorating coronavirus situation weighed on the country’s passenger rail and airport stocks.



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

^MSCI World Net Total Return Index, USD.

Market Outlook and Strategy

The Fund invests in a range of global listed infrastructure assets including toll roads, airports, 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.

The portfolio remains positioned with toll roads as its largest sector overweight. Valuation multiples still imply multi-year traffic declines, in contrast to the improvements that toll road companies referenced in recent quarterly earnings updates. While increased flexibility to work-from-home may result in adjustments to traffic, we see mounting evidence that people prefer to travel by private car than by public transport in order to maintain social distancing.

We remain cautious on the Airports sector. A sustained recovery in airline passenger numbers appears a remote prospect, given to traveller wariness and resurgent coronavirus case numbers in many regions. A staggered re-opening of airports may start with domestic or regional flights, which are less valuable than international flights.

A prudent approach has also been maintained towards North American freight rail stocks. We admire these high quality, well managed infrastructure businesses, but remain conscious of their sensitivity to the economy. Despite a clouded outlook for freight volumes, they continue to trade at historic high multiples. Earnings forecasts reflect expectations of a sharp recovery, which our analysis suggests is an overly optimistic scenario.

The Fund has a small overweight exposure to Multi/Electric utilities. Many good quality utilities are trading at relatively appealing levels, having underperformed in recent rising markets. Regulated utility earnings should be materially more resilient than those of the broader market in the event of an extended economic slowdown or recession. Lower interest rates will be supportive of valuation multiples. Share price gains this month appeared to reflect renewed investor recognition of the longer term structural growth drivers (build-out of renewables, replacement of aged networks) for this sector.


Source : Company data, First State Investments, as of end of July 2020.

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 State Investments (“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 State Investments (Hong Kong) Limited and has not been reviewed by the Securities and Futures Commission in Hong Kong. First State Investments is a business name of First State Investments (Hong Kong) Limited. The First State Investments logo is a trademark of the Commonwealth Bank of Australia or an affiliate thereof and is used by First State Investments under licence.

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 State Investments’ portfolios at a certain point in time, and the holdings may change over time.

First State Investments (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, operating in Australia as First Sentier Investors and as FSI elsewhere.

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