China's overseas infrastructure investments is gathering pace after an initial teething stage. UBS Chief Investment Office (CIO) expects One Belt One Road infrastructure spending to double in the next five years.
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There are clear signs that spending momentum is speeding up, according to CIO analyst Carl Berrisford. Recent projects include a US$13 billion contract with Malaysia to build an East Coast Rail link, and a deal on the first stage of a US$14 billion high speed rail to Thailand. In fact, One Belt One Road-related investment will increase to as much as US$160 billion over the next five years from about US$32 billion currently, according to CIO forecasts.
"The biggest beneficiaries of this One Belt One Road spending will be local infrastructure companies in target Asian emerging markets," said Berrisford. "Over the longer term, overseas contracts could also become more meaningful top-line growth drivers for Chinese infrastructure companies."
China has identified 68 global emerging and frontier market countries as "One Belt One Road countries" on its official website. Emerging market infrastructure spending will rise to US$5.5 trillion by 2025, from US$3 trillion currently.
Moreover, the revocation of the Trans Pacific Partnership by the Trump administration has created an opportunity for China to extend its influence and investment clout. IT has also helped further catalyze regional economic rivalry between China and countries like Japan and South Korea.
For investors, CIO recommends gaining exposure via a broadly diversified index. Publicly listed infrastructure companies in both China and recipient countries are unlikely to have high overall business exposure to One Belt One Road projects, as we are still in the early investment stage.
"We prefer to gain investment exposure across multiple emerging markets, as well as a broad range of infrastructure sub sectors," the analyst said. "We believe this approach best captures the catalytic impact that Chinese One Belt One Road investment will have on emerging market infrastructure investment."