Underpinned by a structural shift in demographics, the number of listed infrastructure related stocks have seen remarkable growth over the last decade. Areas which have experienced this development include Real Estate Investment Trusts (REIT), Transport and Utilities.
Over the last 20 years, the REITs market in Singapore and Hong Kong has grown from zero to be one of the largest and most established globally. The first Singapore-REIT (S-REIT), CapitaLand Mall Trust, was listed on the Singapore Stock Exchange in 2002 with a market capitalization of S$708 million. Now, more than 17 years later, there are a total of 44 S-REITs and Property Trusts with a total market capitalization of about S$98 billion as of 30 June 20201. More REITs can be expected from Emerging Asia going forward. India launched its first REIT last year, while The Philippines is due to launch its first REIT this year. China has announced plans to start listing infrastructure REITs.
Asset recycling from governments have also contributed to this asset expansion. In March this year, the New South Wales (NSW) government announced it was exploring to sell the remaining 49% stake in Sydney motorway WESTCONNEX2. The authority had already sold 51% of the motorway to Transurban for AUD9.3 billion in 20183. NSW Treasurer Perrottet said that, the government would channel the proceeds to build more schools, hospitals as well as road and rail networks.
Gradual dilution of the government’s equity ownership in state owned enterprises have also enlarged the listed infrastructure space in Asia. In India, the government's equity stake in pure-play hydro power operator National Hydroelectric Power Corporation (NHPC) has been reduced from over 85% in March 2015 to just over 70% in March 2020 while institutional investor ownership increased from 6.2% to 18.8% over the same period4.
This combination of sector growth, government asset recycling and state ownership dilution has resulted in the Asia Pacific ex Japan listed infrastructure opportunity set expanding meaningfully from 2010 to 2019 (Chart).
CHART 1: Asset Expansion Creates New Opportunities
Chart 1 Source: Martin Currie Australia, FactSet, as of 31 March 2020. FactSet data as of 30 June 2019. Data shown for illustrative purposes only. Past performance is not a guide to future returns. Utilities refer to MSCI All Countries Asia Pacific ex Japan Utilities Index. REITs refer to S&P Asia Pacific ex Japan REIT Index. Transport refers to MSCI All Countries Asia Pacific ex Japan Transport Index.
The bottom line
The Asia Pacific region is set to dominate global infrastructure spend over the next few decades, with the region accounting for over 50% of the global infrastructure investment needs to 20405. In tandem, investors will see growth of the opportunity set in Asia being driven by asset recycling by governments, new public offerings across sectors and divestment of state linked companies. This evolution will further diversify the geographic and sector choice of investors into Asia Pacific ex Japan infrastructure.
1 Chartbook: SREITs & Property Trusts, June 2020
2 NSW Government Media Release, NSW Government announces scoping study into options for residual stake in WESTCONNEX, 6 March 2020.
3 Transurban, 2019 Investor Day Presentation. 29 April 2019.
4 NHPC Limited, Company Website. Data as of 31 March 2020.
5 Global Infrastructure Hub, Oxford Economics, July 2017.
The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase or sell securities, and the information provided regarding such individual securities is not a sufficient basis upon which to make an investment decision.
Source: Legg Mason and Martin Currie. Data and estimates as at 30 June 2020 unless otherwise stated.
All investments involve risk, including possible loss of principal.
The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested. Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.
Past performance is no guarantee of future results. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, or a guarantee of future results, recommendations or advice. Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable, but the accuracy and completeness of the information cannot be guaranteed and is not a complete summary or statement of all available data. Individual securities mentioned are intended as examples of portfolio holdings and are not intended as buy or sell recommendations. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not take into account the particular investment objectives, financial situation or needs of individual investors. The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason or its affiliates or any of their officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of,and observe such restrictions (if any).
This material may have been prepared by an advisor or entity affiliated with an entity mentioned below through common control and ownership by Legg Mason, Inc. Unless otherwise noted the “$” (dollar sign) represents U.S. Dollars.
All Investors in Hong Kong and Singapore:
This material is provided by Legg Mason Asset Management Hong Kong Limited in Hong Kong and Legg Mason Asset Management Singapore Pte. Limited (Registration Number (UEN): 200007942R) in Singapore.
This material has not been reviewed by the Securities and Futures Commission in Hong Kong. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
Distributors and existing investors in Korea:
This material is provided by Legg Mason Asset Management Hong Kong Limited to eligible recipients in Korea.
This material has not been reviewed by any regulatory authority in Korea.
Distributors in Macau:
If this document is distributed in Macau, this may not be used other than by the Distributors.
This document has not been reviewed by the Monetary Authority of Macao in Macau.
Issuer: Legg Mason Asset Management Hong Kong Limited.
All Investors in Taiwan:
This document is provided by Legg Mason Investments (Taiwan) Limited (Registration Number: (109) Jin Guan Tou Gu Xin Zi Di 016; Address: Suite E, 55F, Taipei 101 Tower, 7, Xin Yi Road, Section 5, Taipei 110, Taiwan, R.O.C.;
Tel: (886) 2-8722 1666) in Taiwan. This document is for information only and does not constitute an offer or invitation to the public to purchase any shares in any fund in Taiwan.
Neither Legg Mason nor any officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this document or its contents. The information in this document is proprietary. This document may not be reproduced, distributed or published without prior written permission from Legg Mason. Any person coming into possession of this document should seek advice for details of, and observe, such restrictions.
If the Press would like to re-edit the press release from their own point of view, it should base on the public information provided by the Legg Mason Investments (Taiwan) and the information contained in such press release shall be not over-promising or exaggerating.
Legg Mason Investments (Taiwan) Limited is operated and managed independently.