Asia's infrastructure sector is in a position to outperform the overall market over the first half of 2009, thanks in large part to government stimulus packages that are expected to spur investments in this area, says Mirae Asset Global Investments.
Countries such as China, Korea, Taiwan, Australia, India and Indonesia have already announced economic stimulus packages that are focused heavily around improving transport infrastructure in particular, according to Mirae Asset, in order to offset the contraction in the private sector.
With public spending packages already contributing at least 2% to annual GDP, Mirae Asset believes that further public spending on infrastructure will follow as governments seek to pump-prime, create jobs and generate direct economic benefits.
An example of this is China, where the country's rail network has long been underinvested. Currently, China's rail network intensity, or its network length per capita, is among the lowest in the world. To address this, the government has allotted a significant portion of its $586 billion stimulus package to improving its railway network.
Mirae Asset predicts that Asian countries will on average cut interest rates by at least 100 basis points over the first half of 2009, which will be positive for rate-sensitive sectors such as shipping, as it eases the pressure on trade finance.
"Statistics show that the quality of infrastructure in Asia-Pacific is below the global average, largely due to under spending in the emerging economies," says Raymond Cheng, portfolio manager for Mirae Asset's Asia-Pacific Infrastructure Fund. "Current market conditions provide the Asian countries with a golden opportunity to take advantage of the commodity price correction to improve their infrastructure and boost long-term competitiveness."
The long-term nature of fiscal stimulus packages gives the sector a more visible growth outlook, Cheng adds.
"Many companies will enjoy lower costs, which should result in margin expansion this year. This points to a more defensive earnings growth profile for the sector," he says.
Mirae Asset believes that exposure to the Asian infrastructure sector will enable investors to benefit from policy stimulus plays through industries such as engineering and construction, equipment makers and building materials.
As of December, 26% of the Mirae Asset Infrastructure Fund was invested in Korea, and more than 15% of the portfolio was exposed to China and Hong Kong. The fund's top five holdings as of December were Hyundai Heavy Industries, Samsung Heavy Industries, Hyundai Engineering and Construction, Leighton Holdings, and Bharat Electricals.