Specialist in Asia Pacific, Japan, China, India and South East Asia and Global Emerging Market equities.

Discover more

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.

Discover more

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 January 2024

Global Listed Infrastructure dipped in January, giving back some of the strong gains achieved during the December quarter of 2023. The best performing infrastructure sector was Other (+6%), which consists of ports, satellites and merchant power operators. Emerging Markets (EM) ports led this group of stocks higher. Railroads (+1%) also increased, as investors focused on the scope for North American freight rail volumes and margins to improve over the course of coming months. Japanese passenger rail stocks were buoyed by positive passenger trends. The worst performing infrastructure sector was Towers / Data Centers (-7%), as positive economic indicators saw interest rate cut expectations subside. 

The best performing infrastructure region was Japan (+5%) owing to strong returns from the country’s electric utilities (not in our Focus List). The worst performing infrastructure region was the United States (-4%), as a protracted timeframe for expected interest rate cuts weighed on its Towers and Utilities.

Fund performance

The Fund returned -1.9% after fees in January1 , 78 basis points behind the FTSE Global Core Infrastructure 50/50 TR Index (SGD).

The best performing stock in the portfolio was Italian multi-utility Hera (+10%). Operating primarily in North-East Italy, the company owns a diversified portfolio of gas, electricity and water distribution assets, along with waste collection and treatment businesses. The announcement of its 2023-2027 business plan, which outlined a higher earnings growth rate alongside a robust capex investment plan and solid balance sheet metrics, met with a warm market reception. West Japan Railway (+5%), whose rail network covers Japan’s Kansai region and includes the major cities of Osaka and Kyoto, gained as investors anticipated strong 2024 earnings.

French-listed infrastructure construction and concessions company Vinci (+3%) rose after raising its free cash flow forecasts for the year. Favourable market trends and the integration of recent acquisitions are proving supportive of its Energies division, which provides technical services for energy, transport and communication infrastructure. Passenger volumes remain healthy for Swiss airport operator Flughafen Zurich (+2%), which announced new tenants, and expansions for some existing ones, at its Circle property business during the month. Budget airline Ryanair revealed it was aiming to grow passenger traffic to Spain from the 55 million forecast for 2024 to 77 million by 2030 — a move which would benefit Spanish airport operator AENA (flat).

The worst performing stock in the portfolio was Chinese water utility Guangdong Investment (-20%), which is predominantly involved in water supply and sewage treatment as well as other businesses including property development. The company fell after a write-down for some property inventory in 2023, owing to the continued downturn in the real estate market, sparked concerns that its distribution growth rate may be affected. Other Chinese infrastructure holdings including Beijing Airport (-1%) and gas utility ENN Energy (+1%) held up better, aided by undemanding valuation multiples. Chinese toll road operator Jiangsu Expressway (+6%) was supported by the prospect of recovering traffic volumes in 2024. Investors also welcomed management comments on the firm’s strategic direction, which reiterated the firm’s commitment to its core toll road assets. 

Healthy economic data from the US weighed on tower operators American Tower (-9%) and Crown Castle (-6%), as investors drew the conclusion that hoped-for interest rate cuts may take longer to implement than market consensus had previously assumed. During the month Crown Castle delivered better than expected December quarter earnings, while American Tower announced it had sold its India tower business to an unlisted infrastructure manager for US$2.5 billion. 

Utilities also came under pressure during the month. US regulated utility Eversource Energy (-12%) fell after writing down the value of its stakes in three Atlantic Ocean offshore wind projects, that it is in the process of divesting, by a total of between US$1.4 billion and US$1.6 billion. UGI Corp (-10%) lagged as the market was disappointed with the progress of their Strategic Review and milder winter weather. However some of these losses were recouped in early February as they announced an update may be provided with the next quarterly earnings release. UK renewables and networks-focused utility SSE plc (-8%) also underperformed as negative news from offshore wind peers and concerns for lower power prices weighed on its share price.

Fund activity

The Fund divested its holding in US east coast freight rail company CSX Corp, on a relative valuation basis. The proceeds were used in part to add to an existing position in east coast peer Norfolk Southern, which we believe has greater scope to increase earnings and operational efficiency metrics from current levels.

Market outlook and fund positioning

The Fund 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. 

Earnings growth for the asset class is likely to be underpinned by a number of structural growth themes over coming years. We remain optimistic about the substantial investment opportunities associated with the decarbonisation of the world’s energy needs. Utilities, which represent about a half of the global listed infrastructure opportunity set, are positioned to derive steady, regulated earnings growth by building solar and wind farms, and by upgrading and expanding the networks needed to connect these new power sources to the end user. Overall electricity demand is expected to grow in many regions, driven in part by additional data centres needed to support internet activity and the AI boom. 

Digitalisation is another key theme for the asset class. We expect structural growth in demand for mobile data (underpinned by an evergrowing reliance on digital connectivity) to support long-term earnings growth for Towers and Data Centres. The adoption of 5G technology over coming years will require networks to handle increased data speed, as well as a much higher number of connected devices.

There remains scope for continued recovery in the transport infrastructure space. We believe toll roads represent exceptional value at current levels, with traffic volumes proving resilient and inflation-linked concession agreements helping to support earnings growth. We also have a largely positive view of North American freight railroads. While the sector faced challenges in 2023, these companies are unique and valuable franchises. Their wholly-owned track networks are high quality infrastructure assets which can never be replicated. They typically operate under duopoly market conditions, with significant numbers of captive customers such as grain, chemical and auto producers giving them strong pricing power over long haul routes. Improving operating efficiency provides further scope to grow earnings. However, we believe some caution is merited currently, owing to recent volume softness. 

Source : Company data, First Sentier Investors, as of 31 January 2024.


Important Information

This material is prepared by First Sentier Investors (Singapore) (“FSI”) (Co. Reg No. 196900420D.) whose views and opinions expressed or implied in the material are subject to change without notice. To the extent permitted by law, FSI accepts no liability whatsoever for any loss, whether direct or indirect, arising from any use of or reliance on this material. This material is published for general information and general circulation only and does not have any regard to the specific investment objectives, financial situation and particular needs of any specific person who may receive this material. Investors may wish to seek advice from a financial adviser and should read the Prospectus, available from First Sentier Investors (Singapore) or any of our Distributors before deciding to subscribe for the Fund. In the event that the investor chooses not to seek advice from a financial adviser, he should consider carefully whether the Fund in question is suitable for him. Past performance of the Fund or the Manager, and any economic and market trends or forecast, are not indicative of the future or likely performance of the Fund or the Manager. The value of units in the Fund, and any income accruing to the units from the Fund, may fall as well as rise. Investors should note that their investment is exposed to fluctuations in exchange rates if the base currency of the Fund and/or underlying investment is different from the currency of your investment. Units are not available to US persons.

Applications for units of the Fund must be made on the application forms accompanying the prospectus. Investments in unit trusts are not obligations of, deposits in, or guaranteed or insured by First Sentier Investors (Singapore), and are subject to risks, including the possible loss of the principal amount invested.

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

In the event of discrepancies between the marketing materials and the Prospectus, the Prospectus shall prevail.

In Singapore, this material is issued by First Sentier Investors (Singapore) whose company registration number is 196900420D. This advertisement or material has not been reviewed by the Monetary Authority of Singapore First Sentier Investors (registration number 53236800B), FSSA Investment Managers (registration number 53314080C), Stewart Investors (registration number 53310114W), Realindex Investments (registration number 53472532E) and Igneo Infrastructure Partners (registration number 53447928J) are the business divisions of First Sentier Investors (Singapore).

First Sentier Investors (Singapore) 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..

MUFG and its subsidiaries are not responsible for any statement or information contained in this material. Neither MUFG nor any of its subsidiaries guarantee the performance of any investment or entity referred to in this material or the repayment of capital. Any investments referred to are not deposits or other liabilities of MUFG or its subsidiaries, and are subject to investment risk, including loss of income and capital invested.