Global Listed Infrastructure Monthly review and outlook

Market review - as at December 2020

Global Listed Infrastructure ended the year on a mixed note. Surging coronavirus case numbers tempered vaccine hopes and the prospect of a more substantial US stimulus package. The best performing infrastructure sector was Railroads (+3%), as Japanese bullet train operators gained on appealing valuations and optimism for future passenger rail volumes. Airports (+2%) also rose on hopes that a coronavirus vaccine rollout would enable the start of a return to normality for the sector.

The worst performing infrastructure sector was Towers / Data Centres (-3%), on the view that higher-than-expected prices at the latest 5G spectrum auction could leave telecom companies with less capital for network investment. Pipelines (-2%) also lagged after a very strong November.

The best performing infrastructure region was Latin America (+6%), as Brazil’s utilities and Mexican airports continued to gain on hopes for a recovery from 2020’s coronavirus-related economic downturn. The worst performing infrastructure region was Australia / NZ (-2%), owing to mounting trade tensions between Australia and China; and a fresh coronavirus outbreak in New South Wales.

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 outlook for the asset class is positive. Interest rates appear set to remain at low levels for a sustained period of time, which should prove supportive of defensive and interest-rate sensitive sectors such as utilities and towers.

Government attempts to improve weak economic fundamentals through infrastructure and green energy stimulus plans are also likely to benefit 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 long time frames.

A slow or uneven economic recovery would also favour structural themes – such as investment in mobile phone networks to support ever-increasing demand for mobile data - over cyclical growth opportunities.

Further, while the timing remains hard to predict, there is also scope for gradual recovery in traffic / passenger volumes for coronavirus-impacted infrastructure sectors such as toll roads, airports and passenger rail, as vaccines are delivered.

In addition, financial market pessimism towards global listed infrastructure over the past year - and optimism towards higher risk assets – has driven an increase in intrinsic value opportunities across the asset class, which bodes well for global listed infrastructure performance in 2021.

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

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