Building the future
Governments’ monetary policies and control of interest rates are running thin. Rates are at all-time lows and there has been huge swathes of cheap money. Without government fiscal policy changes and deep investment into local economies, many countries will struggle to recover.
Governments’ monetary policies and control of interest rates are running thin. Rates are at all-time lows and there has been huge swathes of cheap money. Without government fiscal policy changes and deep investment into local economies, many countries will struggle to recover.
Infrastructure projects are seen as a way to boost economic growth and many countries around the world are now looking to invest in this area. The USA is looking to pass a bill after the election to invest $1.5 trillion into highways, transit, rail and broadband. China has budgeted for trillions of yuan worth of infrastructure covering 5G rollout, data centres, railways and water projects. The US and China are not alone in this spending and many other countries around the world are also increasing infrastructure spend.
Even before COVID-19 plunged the world into financial turmoil a 2017 McKinsey Global Institute report estimated $5.5 trillion was needed to facilitate growth in expanding economies and to replace existing aging infrastructure. The latest McKinsey report looks at how, with falling income in the current environment and governments already spending big on social programs, these much needed infrastructure investments will be funded. The report identified developer contributions, tax increment financing, and land development managed by infrastructure providers, among others.
This will mean more contracts for existing infrastructure companies, new projects for investment and therefore increased potential for profit in the infrastructure space. As governments announce new projects, existing companies will be in a great position to tender for work. There is no doubt that this is great news for infrastructure worldwide.
The VanEck Vectors FTSE Global Infrastructure (Hedged) ETF (ASX code: IFRA) tracks the FTSE Developed Core Infrastructure 50/50 Hedged into Australian Dollars Index, the widely regarded market benchmark for the sector. IFRA includes companies that own and operate the networks and foundations for modern society to function, including transport, energy, water, communications and social services. IFRA is $A hedged, which reduces the impact of fluctuations in the Australian dollar on any income generated offshore.
Published: 08 November 2020
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