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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 October 2021

Global Listed Infrastructure rallied in October, helped by robust September quarter earnings. The FTSE Global Core Infrastructure 50/50 index returned +3.7%, while the MSCI World index^ ended the month +5.7% higher.

The best performing infrastructure sector was Railroads (+14%). North American freight rail operators shrugged off supply chain hold-ups to deliver very strong earnings results. Pipelines (+6%) continued to gain on the view that high energy prices and a recovering global economy would provide the sector with favourable operating conditions. 

The worst performing infrastructure sector was Toll Roads (-3%), as the spread of delta variant coronavirus continued to affect Asia Pacific traffic volumes. Faster-than-expected interest rate rises by Brazil’s central bank weighed on that market’s long duration stocks, including toll roads.

The best performing infrastructure regions were the United States (+7%) and Canada (+6%), reflecting strong gains for their railroad, pipeline and tower stocks. The worst performing infrastructure region was Japan (-8%). The country’s utilities, which are largely dependent on imported natural gas and coal, faced concerns that profits would be negatively affected by higher input costs.

 

^ 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, 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 asset class is positioned to benefit from a number of positive drivers. Government attempts to bolster economic fundamentals through infrastructure and green energy stimulus plans are likely to prove supportive of many global listed infrastructure firms. In particular, the ongoing repair and replacement of old energy transmission and distribution grids, along with the accelerating build-out of renewables, should represent a steady source of utility earnings growth over many years. The 2021 United Nations Climate Change Conference (COP26), held in Glasgow, highlighted the scale of the work required to successfully transition away from fossil fuels (a message reiterated by the International Energy Agency - see further details below). Large-cap, listed electric utilities such as NextEra Energy and Iberdrola will be at the heart of this vital transformation.

Ever-increasing demand for wireless data / connectivity continues to underpin steady earnings growth for Towers and Data Centres, insulating them from the ebbs and flows of the broader global economy. The changes required during the coronavirus pandemic have already led to a greater reliance on wireless data in many people’s everyday lives. The adoption of 5G technology over the medium term will require networks to handle increased data speed, and a much higher number of connected devices. Reflecting this, networking and telecoms company Ericsson expects wireless data traffic within the US to grow by a compound annual growth rate of 28% between 2021 and 2026. 

There remains scope for a recovery in traffic / passenger volumes across coronavirus-impacted infrastructure sectors such as toll roads, airports and passenger rail following the rollout of vaccine programs. Reflecting this, toll roads represent the portfolio’s largest sector overweight. Traffic volumes have proved more resilient than those of other transport infrastructure assets; and toll roads are now leading the way towards (or have already achieved) a return to normal demand levels. We remain more cautious on the Airports sector, as it remains unclear how quickly consumer behaviour will return to normal; and prefer airports with a tourism / leisure focus to those with an emphasis on business travellers.

 

 

Source : Company data, First Sentier Investors, as of 31 October 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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