Where The Growth Is:
One of my duties for my clients, as a financial advisor, is to find long term investment trends. Fifty years ago… if you had only invested in Hoola Hoops. Forty years ago an investment into personal computers would have minted a gold mine for you. Did you catch the wave early with the internet???
I share with my clients what are relevant themes to invest for the future. You see, you do not invest today for today. Rather, you invest now to benefit in the future. (No I cannot give you those themes… that’s what my clients pay me for….)
In general, if you are a global minded investor then you must see the upcoming trend into…… (rim shot please….) “Infrastructure” As boring as it may seem this will be a major money maker. Here is why…
• An estimated 500 million rural Chinese are expected to migrate to cities and towns during the next few decades, and India’s urban population will double.
• Saudi Arabia is no longer content to pump massive quantities of crude oil out of the ground and ship it elsewhere for processing into more lucrative products.
• There are estimates that the U.S would have to lay out more than $1 trillion in the next few years to bring our nation’s highways, airports, water systems and other facilities into good repair.
These three items all relate to infrastructure. Infrastructure will be one of the best global investment opportunities for years to come. OECD estimates that the world will require more than $1.8 trillion per year in infrastructure investment in the coming decade. The cost of modernizing urban water, electricity and transportation systems over the next 25 years will be $41 trillion – a figure roughly equal to the 2006 market capitalization of all shares held in all stock markets in the world.
For emerging markets like China, India and the Middle East, the play is the massive build-out of infrastructure to support future growth ambitions. For North America, Western Europe and the rest of the developed world, there is a pressing need to repair or replace aging roads, bridges and the like.
You get a vague sense of this need when you’re dodging potholes or cursing a “no service available” message on your mobile phone. When a highway bridge in Minneapolis collapsed into the Mississippi River, killing 13 people, then things should have come into clearer focus for you.
Before the Minneapolis bridge there was Hurricane Katrina. Chicago’s crumbling mass transit system has been called the biggest hurdle to its bid for the 2016 Summer Olympics.
Infirm infrastructure is hardly unique to the United States. A recent study in Canada found that the country’s roadways, sewer systems, wastewater treatment facilities and bridges had passed the halfway point of their lives. A drought in London a few years back exposed a network of leak-riddled water pipes under the Thames that dated back to Queen Victoria’s reign, and in Russia and Eastern Europe, the post communist period has been one of growth and modernization.
Among developing nations, much of the demand for infrastructure boils down to a pair of keys trends: population growth and urbanization. The global population is expected to grow at an average rate of 1.6% annually. By 2030 there will be 8.3 billion people on Earth, with six out of every 10 living in cities. More than 80% of the planet’s people live in the emerging world, the giants being China and India. Chinese are flocking to cities in search of economic opportunities. The same phenomenon is true of India: an estimated 540 million Indians will be urban dwellers in 2025, roughly double today’s levels. Like the upwardly mobile in the West, these urban dwellers will expect better transportation and communication services.
Many of the top government and business leaders in China and India were educated at U.S. universities and have brought the “American Dream” back to their homeland. China’s current five year plan, which runs through 2010, calls for spending $200 billion for airports and subways, $175 billion for railroads and $80 billion for highways, and $70 billion for water and wastewater treatment. Morgan Stanley estimates that China will need $346 billion for electricity generation and distribution between 2006 and 2010. India, which announced in late 2007 that it intends to spend 8% of its GDP – that is, $500 billion – on infrastructure over the next five years in order to hit its desired economic growth rate of 10%. The country is plagued by power shortages, a dearth of multilane highways, and antiquated and overwhelmed ports.
Over the coming years, spending by the Gulf countries is expected to exceed that of India, even though their total population is just a small fraction of India’s billion plus one. Gulf nations are investing those petrodollars in their own infrastructure this time.
Saudi Arabia: A half-dozen “economic cities” are being built from scratch as part of a government plan to attract foreign capital and to capitalize on its location between Europe and Asia.
Many companies will be involved in this work, including heavy-equipment makers, cement suppliers, steel manufacturers, utilities, and engineering firms. On a broader level, there will be continued strong demand for copper, steel and other commodities. Governmental involvement is what separates the infrastructure build-out from regular construction. Activity, and I think the political will, exists to support long term infrastructure creation worldwide.
Make your investment now with a minimum of a 10 year benefit horizon. Don’t let your head be like “concrete” – that is all mixed up and permanently set! You will look back at today and see you made a “steel” by investing ahead of the crowd (I know bad puns). As you travel the U.S. please note how all major airports are expanding as you see all the cement trucks lining up to pour… image if you were getting a “buck $ a truck.”
Ah, discipline or regret!