Positive outlook for EMs infrastructure assets

By ASILA JALIL / Pic Source clearbridge.com

INFRASTRUCTURE assets in the emerging markets (EMs) are poised to have a very positive outlook and can provide investors with attractive returns due to the promising development in the markets. 

ClearBridge Investments Ltd MD and portfolio manager Charles Hamieh said it is an exciting time for investors in the market to weigh in on infrastructure assets in their portfolio as governments are serious about improving their respective countries’ infrastructure. 

“The EMs have provided a very fertile area for infrastructure investments, namely because of the immense requirement for infrastructure. 

“We cannot imagine a world without infrastructure and that is what’s happening in many EMs now and the governments are getting very serious about improving that,” he said yesterday during Franklin Templeton 2021 Mid Year Outlook webinar series. 

Hamieh said there are ample opportunities for investors to invest in very high-quality infrastructure assets in EMs and achieve attractive returns. 

The immense requirement for infrastructure has led to governments providing attractive returns to private capital. 

“They have no fiscal ability to improve infrastructure or maintain it and they are sourcing that increasingly to the private sector. 

“It is done in an environment of very clearly articulated regulatory outcomes or concession agreements and there are a lot of returns which are much higher than what we have seen in equivalent developed markets opportunities,” he said. 

As companies are adopting sustainability and decarbonisation efforts in their operations, Hamieh said it is an area that infrastructure assets have been focusing on with a lot of factors that require attention such as spending. 

He expects massive spending needs to occur for the transition to take place where allocations would be centred on electrifying the grids for markets to decarbonise the economy.

“A lot of spending will be done by listed infrastructure companies. It is a very large spending requirement, whether it is building solar or wind facilities or strengthening and hardening the transmission distribution lines to deal with variability of renewable energy,” he said. 

Hamieh said listed companies will ride in the forefront of achieving the sustainability goals and a lot of spending and structural changes have been driven by listed infrastructure companies. 

“They are being done in an environment of regulation or concession agreement and that is important because as investors, we earn a return for that spending.” 

He added investors should build a more defensive portfolio with listed infra-structure assets as core infrastructure focuses on strong cashflow from a growing asset base. 

The liquidity surrounding the assets also allow investors to deploy capital easily and manage through uncertain economic and policy environments.