Infrastructure in the aftermath of COVID-19
Kim Catechis and Andrew Chambers, Portfolio Manager for Real Assets discuss how an increasing investment in infrastructure can not only keep people employed but act as an economic stimulus.
Aftermath series
This video is part of our weekly AFTERMATH video series led by Kim Catechis, Head of Investment Strategy, where members of the Martin Currie investment team discuss the far-reaching impacts of COVID-19 on the economy, the equity market, society, politics, the environment and our portfolios.
With interest rates likely to remain low for an extended period of time, stimulating through productivity-enhancing real asset investments makes a lot of sense.
Script
Kim: Hello, and welcome to the AFTERMATH. Today we are talking infrastructure, and with me to parse through this complex topic I have Andrew Chambers from our Melbourne office, who runs the Asia Real product. Andrew, really good to see you.
Andrew: G'day Kim, great to see you too.
Kim: Andrew, infrastructure is very effective historically at boosting economic growth, aren't governments pulling levers and pressing buttons now?
Andrew: Look COVID-19 has been a major hit to the world economy and there has been widespread calls for infrastructure and capital spend as a form of stimulus for the economy.
Governments spend and actions to date have tended to focus on the health system, the financial system, providing income to support or debt relief to people that are locked down during the social
restrictions. However a lot of this government support has really been a short-term focus, getting through the next month or so, and I see significant economic challenges ahead and there is very limited monetary policy levers that can be pulled.
So, we believe that increasing investment in infrastructure can not only keep people employed but act as an economic stimulus and help business. But furthermore, it will improve the productive capacity of the economy in the future, and so with interest rates likely to remain low for an extended period of time, stimulating through productivity-enhancing real asset investments makes a lot of sense.
Kim: Yeah it does it indeed. Now, to my knowledge, apart from China's belt and road initiative which is now in its 7th year, the only place in the world I have seen some serious ambition being talked about, at least, is the European Union's new Green Deal. Have you seen anything of that size or magnitude, or what have you seen in Asia and Australia?
Andrew: Yeah look, global warming and carbon emissions is now becoming a sort of a key investment consideration in Asia and Australia. I believe that additional government support is necessary really to get it up to perhaps what we have seen in Europe. And so regulatory directives or direct government support would certainly be very helpful in this regard. Not only would it help stimulate jobs, stimulate investment, help business, but it would also have quite positive environmental and emission outcomes.
So, when we look at, let's say real assets and utilities, we see a lot of opportunities in this space to get involved, whether it’s the Australian integrated regulated utilities like AGL or Ausnet, they can get involved. When we look across Asia, CLP in Hong Kong or HPC in India can certainty get involved in that, and then we are also looking more globally as well. So in the US, Duke Energy or Dominion also have significant opportunity to invest in capital expenditure that can really help reduce emissions and provide a cleaner energy future. And so we do see significant opportunity in this space.
Kim: Sounds good. Now what about transport, it's kind of an older and more established part of infrastructure. I saw a report from the World Bank estimating about US$700 billion required for this type of infrastructure in East Asia alone1, what's your take on that?
Andrew: Yeah look, quite simply a growing population, growing middle classes, results in ongoing demand for travel. And whilst COVID-19 is clearly impacting travel, and the significant social restrictions that are reducing volumes through aviation and public transport that might take some time to recover, we believe that private travel such as by car or by bike, will increase rapidly both in the short term but also in the long term. So we see significant congestion occurring throughout the transport network.
So we believe the capital expenditure for roads, bridges, bike lanes is very helpful, it’s labour intensive, it uses plenty of materials helping local business', it will improve private mobility helping economic productivity.
And so we have already seen signs of some of the large toll road groups such as Transurban put forward major projects in Australia and North America, that should not only facilitate congestion busting and improving productivity, but also really help the economy. We would certainly encourage governments to undertake spend of their own in this regard.
Kim: That sounds great. Andrew, thanks very much for taking us through that, that's very useful.
And to you, thanks very much for watching, please tune in again next week, we will have you something completely different.
1Source: World Bank. Data Table: Infrastructure Investment Needs in Low and Middle Income Countries. Available from: https://www.worldbank.org/en/data/interactive/2019/02/19/data-table-infrastructure-investment-needs-in-low-and-middle-income-countries"
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