Belt & Road offers investors second-wave opportunities
China’s Belt and Road Asia-to-Europe infrastructure initiative (BRI) should benefit sectors beyond infrastructure, with real estate and financial technology sectors among those that could attract institutional investors, AsianInvestor learnt from various investors.
These type of sectors offer easier investment opportunities for investors. Big infrastructure projects often take years to complete, require large sums of funding and involve various risks including construction completion risks.
In contrast, many second-effect opportunities are quicker, cheaper and less risky for some investors, although their potential is also inherently linked to to the success of Belt and Road initiative.
Real estate
The “Belt Road” initiative will impact on many industries, opens up trade routes, and make economies more efficient and hopefully more prosperous, Paul Carrett, group chief investment officer at Hong Kong-based insurer FWD, told AsianInvestor.
When it comes to investing to take advantage of that, “I’ll be interested in the opportunities created from second-order effects. For instance, putting a railway in certain places may increase the financial value of a port or real estate along the line of the railway,” Carrett said.
Similarly, Chen Shuang, chief executive of China Everbright Limited—the Hong Kong investment arm of China Everbright Group—said in the firm’s annual investment conference in Hong Kong in late October that he thought private capital would take up an increasing portion of Belt and Road funding, such as in the telecommunication and commercial real estate segments.
Chen said he recently paid a visit to Southeast Asian countries and found many interesting opportunities there derived from BRI developments.
One example is the demand for commercial properties in Ho Chi Minh City, Vietnam. The business expansion of Chinese companies in the city creates a huge demand for office buildings, but the city has total office space of just 1 million square metres, which is far below the demand of Chinese companies, Chen said. He didn’t estimate how much more commercial space will need to be built.
Consumer sectors
There are also equity investment opportunities into companies poised to benefit from the Belt and Road initiative.
“The Belt and Road initiative is not just for infrastructure construction. Beyond that, when the infrastructure construction is done, it will help China exports capacity in a wide variety of sectors,” Gabriel Wong, head of China corporate finance at PwC told AsianInvestor.
For example, Kazakhstan should begin developing a digital economy. China Telecom is helping lay the optical fibre in the country. When it’s done, Kazakhstan can develop e-commerce, and companies such as Chinese online retailer and Alibaba subsidiary Taobao can expand westwards into the country, Wong said.
Meanwhile, some companies in Vietnam and Thailand are copying Chinese companies’ business models to develop online payment and social networking platforms, in the expectation that Chinese firms or other investors will acquire them in the future, China Everbright’s Chen said.
One example is Rabbit Card, an e-money service provider in Thailand. The current valuation of these companies is at a reasonable level, but they are not in a hurry to sell stakes; instead, they are cultivating customer base and improving services, Chen said.
As the second-effect opportunities are largely courtesy of the Belt and Road initiative, they are also exposed to the risks of the initiative.
BRI push
Asia’s infrastructure needs are vast. But for over 20 years the region has failed to entice much international investor capital to help meet them. The quality of most projects simply hasn’t been high enough, and the political and risks of investing into Greenfield projects too great.
That could be set to change, thanks to the ambitious plan of Belt and Road announced by president Xi Jinping in 2013, which is designed to strengthen intra-regional integration between China and countries in Eurasia and beyond.
The biggest factor in the favour of China’s Belt and Road initiative is its popularity. Governments and institutions alike see it as having the potential to create hundreds of millions of jobs, while improving the connectivity and growth of emerging countries.
The working populations of the 39 Silk Road countries are set to surge by over 380 million between 2015 and 2030; BRI offers the largest available option to supply more jobs to these people, Virginie Maisonneuve, chief investment officer of Eastspring Investments, told AsianInvestor.
An in-depth analysis of how institutional investors see the infrastructure investment opportunities with Belt and Road initiative, and how they have and are advised to enter the sector is published in a feature on the October/November issue of AsianInvestor magazine.