Outlook 2025: A resurgent year for infrastructure
Infrastructure will make a comeback for 2025 across the APAC region. Driven by burgeoning populations and AI, growth remains untapped in electricity, data centres, renewable energies, among many others, according to experts.
And some experts have reiterated the themes of decarbonisation and digitalisation as the mega trends for the coming years, which will perform well for these sectors.
"Today, the outlook for the Asia-Pacific economy looks positive over the long term, fuelling the need for more infrastructure," said Verena Lim, Macquarie Group's Asia CEO, told AsianInvestor. "This means opportunities across a wider number of sectors, from transportation and digital networks to energy systems and urban utilities."
BASICS AND EXPANSION
Opportunities lie in both developed and developing nations across Asia Pacific.
Southeast Asia and India have medium to low quality roads and ports, which means there is potential for development, Peter Guevarra, director of research consultancy across APAC at JLL told AsianInvestor.
The demand in these regions is supported by rapid population growth and GDP expansion, leading to a growing middle class with needs for higher quality infrastructure, Lim added.
One example is India, which aims to be a developed economy by 2047.
The world's most populous country launched the national infrastructure pipeline back in 2019, focusing on improving its infrastructure by developing 200,000 km national highway networks and expanding the number of airports to 220 by 2025.
“There may also be opportunities in renewable energy such as large-scale solar and wind farms, particularly in countries like India and Vietnam attractive to investors.” the JLL director added.
In more developed parts of Asia Pacific, there maybe expansions in digital infrastructure, high speed rails and renewable energy, according to Guevarra.
IFM Investors
"Assets such as telecommunication towers, data centres and fibre networks are experiencing greater demand than ever before." Peter Swarbreck, executive director and head of client solutions Asia from IFM Investors, told AsianInvestor.
According to the IFM's survey, the rise in new technologies such as AI, internet of things (IoT) and automation have huge impact on investors' investment strategies.
Nick Langley, portfolio manager at ClearBridge Investments, part of Franklin Templeton, shared similar sentiment, adding that the valuations are attractive at current levels.
"Accelerating power demand growth propelled by data centre expansion and growing AI adoption is an opportunity playing out in Malaysia and rising in the Philippines," Langley told AsianInvestor.
"The market is still massively underestimating the growth in electricity demand driven by AI and data growth, as well as any pro-growth fiscal policy that would boost manufacturing," Langley added.
"Utilities with exposures to these strong themes, and a high likelihood of earnings upside surprises, look well positioned."
RISKS AND CONSTRAINTS
Investors should also beware of the potential risks in this sector, ranging from changes in monetary policies to political risks.
For countries that will likely maintain or impose tight monetary policies, infrastructure and utilities may face more financing challenges since they are capital-intensive sectors, Langley explained.
The large quantity of money needed for infrastructure also means that they can be more illiquid compared with other asset classes.
Currency depreciation, for one, may pose headwinds for countries that rely on importing raw materials in US dollar. The tariff threat from US president-elect Donald Trump could affect global trade flows of goods and disrupt supply chains for infrastructure projects, especially those in China, according to Langley.
The private market tends to be a better hedge against unanticipated swings caused by geopolitical risks and events, said Swarbreck.
"A well-diversified infrastructure portfolio that has a mix of inflation protected assets, regulated exposures as well as platform capabilities can become a defensive ballast to an investor’s real asset portfolio." Swarbreck added.