Friday, August 1, 2008

Emerging Market Infrastructure: An Investment for the Next Decade

I've talked at length about the prospects of global infrastructure growth. This story is being led by emerging market economies that include: China, India, Russia, Brazil, the Middle East, Eastern Europe, and many other countries. Although there has been some debate about whether emerging market growth has peaked, I believe there are still many opportunities in this space.

In April, Morgan Stanley released a research report, with the following quote "We forecast a total of US $21.7 trillion in infrastructure spending in emerging markets over the next decade, with Asia representing 67% of this total." The report focuses on growth in airports, electricity, ports, property, railways, and water.

A company I've focused on, ABB (ABB) is at the center of the electrical segment of this boom. Take a look at this previous post of mine for some detail on ABB.

In the water space, take a look at Veolia Environment (VE)

If you'd like a mutual fund, T Rowe Price has some great emerging market funds. I currently own their Africa and Middle East Fund (TRAMX).

I've outlined some of the reasons for growth earlier, but here are a few:

-Significant inflows of capital due to commodities (Middle East, Russia, Africa, Brazil)
-Sovereign wealth funds looking to invest capital (Many of these countries have many billions to invest)
-Tremendous population growth taking place as developed nations decline in growth. Human capital is a valuable resource.
-Urbanization taking place (especially in China), furthering the need for roads, railways, water infrastructure, and electrical systems.
-Climate change causing need for improving energy systems (especially in US).

All of these factors point to tremendous capital, both by governments and private industry into global infrastructure, construction, and utilities.

Disclosure: Long ABB, TRAMX.

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