A monthly review and outlook of the Global Listed Infrastructure sector.
Market review - as at September 2023
Global Listed Infrastructure fell in September as persistent concerns for higher bond yields weighed on financial markets.
Energy Midstream (-2%) held up relatively well, supported by a rising oil price and a positive demand outlook for energy storage and transportation services. The worst performing infrastructure sector was the interest rate-sensitive Towers / DCs (-8%) sector, which came under pressure as the US 10-year treasury yield increased from 4.1% to 4.6% during the month.
The best performing infrastructure region was Japan (+1%) as the country’s passenger rail companies continued to report favourable demand / passenger volume trends. The worst performing infrastructure region was the United States (-5%), reflecting underperformance from its large cap utility and tower stocks.
Market outlook and Strategy
The Portfolio invests in a range of listed infrastructure assets including toll roads, airports, railroads, utilities and renewables, energy midstream, wireless towers and data centres. 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.
Having held up well in 2022 against a backdrop of falling global equities, global listed infrastructure has underperformed during 2023. This appears to be primarily a reflection of macro factors; rising interest rates have weighed on infrastructure valuations, while inflation (which listed infrastructure assets can typically pass through to the end user) has subsided.
Performance in 2023 also reflects some more sector-specific headwinds. While passenger / traffic volumes for transport infrastructure have recovered to pre-pandemic levels in most cases, airports have yet to see a full recovery in Chinese overseas passengers, and business travel remains below 2019 levels. Toll roads face regulatory challenges in France and Australia, with a tax on concessions (toll roads, airports) being proposed in France, and Australia’s competition authority opposing Transurban’s proposed acquisition of EastLink. Towers have flagged the prospect of lower growth as telecom companies (towers’ main customers) ease back on their mobile network investment plans.
However, the fundamentals of infrastructure have not changed. Infrastructure companies are still delivering essential services to millions of people every day, generating stable and predictable earnings via regulated or contracted frameworks. The theses for a number of long term, structural growth drivers remain largely intact.
Source : Company data, First Sentier Investors, as of 30 September 2023.
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