Buying Infrastructure
FALLS CHURCH, Va.–After 20 years of making things for the rest of the world, Asia is now in position to address its own needs.
There’s been no infrastructure and construction activity since the 1997 Asian crisis, but after a period of strong growth and further integration into the world system, the region’s economies are ready to embark on a multi-year investment process aimed at improving a physical platform that will facilitate still more development. This process–underway in earnest since 2003–will only intensify through the end of the decade.
International developmental agencies estimate that more than USD600 billion will be spent improving living conditions in Asia, home to a third of the world’s population. China and India are at the forefront of such efforts, with Indonesia, Thailand, the Philippines and Vietnam right behind. Roads, railways, airports, power production, electricity supply, clean water and waste management are all on the to-do lists.
China, leading the way on roads, railroads and energy, is now in the construction phase of a 30-year, 85,000 kilometer expressway project. It’s also building a railway that will link China’s east and west for the first time, and China and other Asian countries are in the planning stages of a trans-Asia rail link. Beijing hopes to build the world’s longest subway system by 2020. And the country also continues to invest big in energy–conventional as well as nuclear and solar.
India, substantially behind on infrastructure compared to China, has plans of its own to support and sustain its economic growth. The National Highway Development Project, having succeeded with the still-expanding Golden Quadrilateral road network and the North-South-East-West corridor (see map below), is expanding its operations with investments of USD50 billion over the next five years. Other state and rural road projects are also in the pipeline.
India is also investing USD12 billion in deepwater port construction and USD10 billion in the expansion of the national network of airports. The railway system, the second-biggest in the world, will see USD70 billion in expansion and improvements. Power demand is already growing at an estimated 15 percent per year–it’s estimated that India will have to spend USD140 billion in the next five years for additional capacity as well as investing in transmission and distribution (T&D).
Source: Investment Commission of India
Smaller Asian economies also have great need for infrastructure improvements and are similarly able to use such investments to expand on current growth.
Vietnam’s accelerated urbanization has created the need for additional roads and housing. There’s not enough energy to cover demand, but that concern will be addressed by at least 60 new plans in the works for the next 10 years. Mass transport systems and ports are under construction or are being planned. The Philippines and Indonesia are following the same pattern, with plans to spend on highways, railway systems, airports and energy projects.
The Stocks
We’ve had exposure to the multi-year Asian infrastructure/construction theme in the SRI Portfolio for some time. Infrastructure-related companies in the Portfolio include Cheung Kong, Keppel Corp, Mitsubishi Heavy Industries and City Developments.
I’m adding two more stocks, one to the Long-Term Holdings and one to the Alternative Holdings, in an effort to gain more exposure to the story, particularly as it relates to China and India.
Switzerland-based ABB (NSYE: ABB) is a global provider of power and automation technologies. The company operates five divisions: Power Products, Power Systems, Automation Products, Process Automation and Robotics.
ABB offers direct exposure in India through its subsidiary ABB India, a leading player in the Indian power and automation technology sectors. As India increases its energy generation capacity, it will also invest substantially in T&D infrastructure. ABB is the world leader in transmission grids, and it will benefit tremendously from changes taking place in India–the country now loses 32 percent of its energy during T&D and must improve.
Process automation has been one of ABB’s fastest-growing sectors globally. This sector offers a company like ABB a lot of opportunity in India. ABB has a competitive edge because of its expertise on the subject and can service a variety of industries–from cement to oil and gas, metal and mining to pulp and paper. Its products include low- and medium-voltage products and systems, electric controls, motors, power electronics and more. ABB also offers automation solutions such as integrated process control and information services and management systems. Buy ABB, a new addition to the Long-Term Holdings Portfolio.
Source: Bloomberg
Datang International Power Generation (OTC: DIPGY) is one of the largest publicly listed independent power producers in China. Datang is one more way to get exposure in the infrastructure theme in Asia. Although it’s essentially a utility, Datang’s growth potential shouldn’t be underestimated.
The company has steadily increased capacity and is expected to grow organically to 23,000 megawatts (MW) in 2007 based on newly announced and approved projects. Note that Datang’s construction cost of around RMB3.35 million/MW makes it one of the lowest-cost developers in China.
Datang has two promising projects under planning–it’s been diversifying to hydropower and has invested in stations that will collectively generate 3,400 MW. The project is expected to increase Datang’s hydro exposure from 1 percent of revenue to around 14 percent.
The company has also taken a minority but significant 49 stake in the 2,000 MW Ningde Nuclear Power Plant. This is a key strategic development, as under current government regulation power companies can’t control nuclear stations unless they have prior operational experience. By participating in Ningde, Datang should be able to control its next investment in nuclear power, a critical infrastructure area in China.
I’m adding Datang to the Alternative Holdings Portfolio–as always, Alternative Holdings are intended to supplement your main holdings. Buy Datang.
Source: Bloomberg
Technical Issues
SRI has one main portfolio, the Long-Term Holdings, and an alternative, the Alternative Holdings-Permanent Hedges. Investors should look first to the Long-Term Holdings for asset allocation in the markets I cover.
In the Alternative Holdings-Permanent Hedges Portfolio, readers can track permanent hedges and shorter-term recommendations. It also includes companies I’ve recommended for longer-term or more fundamental reasons but haven’t added to the Long-Term Holdings; for example, Lukoil provides extra exposure to a favored theme.
A new feature has been added to the Web site. On the left-hand side of the screen, under the title “Portfolio Performance,” readers can get a snapshot of the SRI Portfolio’s return compared to other major indexes. You’ll also find an explanation of the way I view the investment process. (This is especially helpful to new readers.)
On the Portfolio page, you can click on the asterisk next to each holding to review the original commentary and recommendation. We plan to enhance the Portfolio table with extra features as soon as our IT guys give us the OK.
Many readers have requested information on brokers that can better execute SRI recommendations. Click the headline “Resources” and see “Brokers & Services.”
E*Trade is a mainstream broker that can now handle some international trading online. Commissions are slightly higher, but the Web site is particularly easy to use and includes solid news and quote feeds for most foreign markets.
According to a recent Wall Street Journal article, Fidelity has seen a fourfold increase in customer requests for international stock purchases. As a result, it’s beefed up its customer service staff to handle the transactions. You can buy foreign stocks through Fidelity by calling the broker directly.
If you’ve had positive experiences buying foreign stocks with other brokers, please drop me an e-mail and I’ll include them in an upcoming issue. And if you plan on getting into some of my non-US traded stocks, be sure to check out your current broker’s capabilities.
There’s been no infrastructure and construction activity since the 1997 Asian crisis, but after a period of strong growth and further integration into the world system, the region’s economies are ready to embark on a multi-year investment process aimed at improving a physical platform that will facilitate still more development. This process–underway in earnest since 2003–will only intensify through the end of the decade.
International developmental agencies estimate that more than USD600 billion will be spent improving living conditions in Asia, home to a third of the world’s population. China and India are at the forefront of such efforts, with Indonesia, Thailand, the Philippines and Vietnam right behind. Roads, railways, airports, power production, electricity supply, clean water and waste management are all on the to-do lists.
China, leading the way on roads, railroads and energy, is now in the construction phase of a 30-year, 85,000 kilometer expressway project. It’s also building a railway that will link China’s east and west for the first time, and China and other Asian countries are in the planning stages of a trans-Asia rail link. Beijing hopes to build the world’s longest subway system by 2020. And the country also continues to invest big in energy–conventional as well as nuclear and solar.
India, substantially behind on infrastructure compared to China, has plans of its own to support and sustain its economic growth. The National Highway Development Project, having succeeded with the still-expanding Golden Quadrilateral road network and the North-South-East-West corridor (see map below), is expanding its operations with investments of USD50 billion over the next five years. Other state and rural road projects are also in the pipeline.
India is also investing USD12 billion in deepwater port construction and USD10 billion in the expansion of the national network of airports. The railway system, the second-biggest in the world, will see USD70 billion in expansion and improvements. Power demand is already growing at an estimated 15 percent per year–it’s estimated that India will have to spend USD140 billion in the next five years for additional capacity as well as investing in transmission and distribution (T&D).
Source: Investment Commission of India
Smaller Asian economies also have great need for infrastructure improvements and are similarly able to use such investments to expand on current growth.
Vietnam’s accelerated urbanization has created the need for additional roads and housing. There’s not enough energy to cover demand, but that concern will be addressed by at least 60 new plans in the works for the next 10 years. Mass transport systems and ports are under construction or are being planned. The Philippines and Indonesia are following the same pattern, with plans to spend on highways, railway systems, airports and energy projects.
The Stocks
We’ve had exposure to the multi-year Asian infrastructure/construction theme in the SRI Portfolio for some time. Infrastructure-related companies in the Portfolio include Cheung Kong, Keppel Corp, Mitsubishi Heavy Industries and City Developments.
I’m adding two more stocks, one to the Long-Term Holdings and one to the Alternative Holdings, in an effort to gain more exposure to the story, particularly as it relates to China and India.
Switzerland-based ABB (NSYE: ABB) is a global provider of power and automation technologies. The company operates five divisions: Power Products, Power Systems, Automation Products, Process Automation and Robotics.
ABB offers direct exposure in India through its subsidiary ABB India, a leading player in the Indian power and automation technology sectors. As India increases its energy generation capacity, it will also invest substantially in T&D infrastructure. ABB is the world leader in transmission grids, and it will benefit tremendously from changes taking place in India–the country now loses 32 percent of its energy during T&D and must improve.
Process automation has been one of ABB’s fastest-growing sectors globally. This sector offers a company like ABB a lot of opportunity in India. ABB has a competitive edge because of its expertise on the subject and can service a variety of industries–from cement to oil and gas, metal and mining to pulp and paper. Its products include low- and medium-voltage products and systems, electric controls, motors, power electronics and more. ABB also offers automation solutions such as integrated process control and information services and management systems. Buy ABB, a new addition to the Long-Term Holdings Portfolio.
Source: Bloomberg
Datang International Power Generation (OTC: DIPGY) is one of the largest publicly listed independent power producers in China. Datang is one more way to get exposure in the infrastructure theme in Asia. Although it’s essentially a utility, Datang’s growth potential shouldn’t be underestimated.
The company has steadily increased capacity and is expected to grow organically to 23,000 megawatts (MW) in 2007 based on newly announced and approved projects. Note that Datang’s construction cost of around RMB3.35 million/MW makes it one of the lowest-cost developers in China.
Datang has two promising projects under planning–it’s been diversifying to hydropower and has invested in stations that will collectively generate 3,400 MW. The project is expected to increase Datang’s hydro exposure from 1 percent of revenue to around 14 percent.
The company has also taken a minority but significant 49 stake in the 2,000 MW Ningde Nuclear Power Plant. This is a key strategic development, as under current government regulation power companies can’t control nuclear stations unless they have prior operational experience. By participating in Ningde, Datang should be able to control its next investment in nuclear power, a critical infrastructure area in China.
I’m adding Datang to the Alternative Holdings Portfolio–as always, Alternative Holdings are intended to supplement your main holdings. Buy Datang.
Source: Bloomberg
Technical Issues
SRI has one main portfolio, the Long-Term Holdings, and an alternative, the Alternative Holdings-Permanent Hedges. Investors should look first to the Long-Term Holdings for asset allocation in the markets I cover.
In the Alternative Holdings-Permanent Hedges Portfolio, readers can track permanent hedges and shorter-term recommendations. It also includes companies I’ve recommended for longer-term or more fundamental reasons but haven’t added to the Long-Term Holdings; for example, Lukoil provides extra exposure to a favored theme.
A new feature has been added to the Web site. On the left-hand side of the screen, under the title “Portfolio Performance,” readers can get a snapshot of the SRI Portfolio’s return compared to other major indexes. You’ll also find an explanation of the way I view the investment process. (This is especially helpful to new readers.)
On the Portfolio page, you can click on the asterisk next to each holding to review the original commentary and recommendation. We plan to enhance the Portfolio table with extra features as soon as our IT guys give us the OK.
Many readers have requested information on brokers that can better execute SRI recommendations. Click the headline “Resources” and see “Brokers & Services.”
E*Trade is a mainstream broker that can now handle some international trading online. Commissions are slightly higher, but the Web site is particularly easy to use and includes solid news and quote feeds for most foreign markets.
According to a recent Wall Street Journal article, Fidelity has seen a fourfold increase in customer requests for international stock purchases. As a result, it’s beefed up its customer service staff to handle the transactions. You can buy foreign stocks through Fidelity by calling the broker directly.
If you’ve had positive experiences buying foreign stocks with other brokers, please drop me an e-mail and I’ll include them in an upcoming issue. And if you plan on getting into some of my non-US traded stocks, be sure to check out your current broker’s capabilities.
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