Global Listed Infrastructure Monthly review and outlook

Market review - as at August 2020

Global Listed Infrastructure dipped in August as global equities continued their tech-led rally. The best performing infrastructure sector was Airports (+9%), as investors looked past international travel restrictions and further airline capacity cuts to focus instead on the prospect of a medium term recovery. Railroads (+8%) were buoyed by healthy volume recovery and supportive economic indicators (freight); and the emergence of relative value (passenger). The worst performing infrastructure sector was Towers / Data Centres (-4%), which paused for breath after delivering strong positive returns since the start of 2020. Water, Multi- and Electric Utilities (-3% to -1%) also lagged in the risk-on environment.

The best performing infrastructure region was Japan (+8%) where airports and railroads led the gains. The resignation of Japanese Prime Minister Shinzo Abe at the end of the month for health reasons is not expected to have material implications for Japan’s infrastructure stocks. The worst performing infrastructure region was the UK (-2%), reflecting its high utilities weighting.

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

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 macroeconomic outlook remains hard to predict and will depend largely on coronavirus developments / progress. While the ongoing rally in global equity markets appears to imply an imminent V-shaped recovery, we remain alert to the risk of second waves, prolonged recessions and slow recoveries.

Against a more challenging backdrop, cyclical growth would become less valuable than the long term structural earnings growth drivers offered by many infrastructure assets. Examples include the build-out of renewable energy; increasing data mobility / connectivity needs being met by mobile towers and data centres; the electrification of transportation; the reduction of urban congestion; and the ongoing replacement of aged infrastructure assets.

Further, infrastructure could be the target of near term economic stimulus measures. Investment in infrastructure remains highly popular across society, and on both sides of the political divide. Private sector infrastructure investment could provide a useful way for politicians to boost anaemic economic growth rates and reduce high unemployment levels.

Source : Company data, First Sentier Investors, as of end of August 2020

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