One Belt, One Road, Part I

One Belt, One Road, Part I

Beijing's commitment to the One Belt, One Road policy is clear. The question now is how investors can take advantage of the opportunities this policy might create.

With the curtain having closed on China’s 19th Party Congress, we now have a firmer sense of Beijing’s long-term priorities. A key takeaway for us as investors was President Xi Jinping’s continued commitment to creating a modern-day Silk Road. The ‘One Belt, One Road’ (OBOR) initiative, has now been formally included in the Communist Party’s constitution.

First announced by Xi in 2013, this is a gargantuan infrastructure project seeking to link China, by land and water, to Europe. The key aim of this undertaking is to project soft power, simultaneously utilising China’s industrial spare capacity and showcasing its geopolitical strength.

The initiative has been likened to the US Marshall Plan, which aimed to rebuild war-ravaged countries in Europe following the Second World War – but OBOR is on a different order of magnitude, even when compared in today’s money.

China lists some 68 nations as partners in the project, and the anticipated investment across these – in the form of ports, airports, highways, railways, power generation plants, pipelines and so on – has been estimated between US$2–3 trillion.

Typically, the critical question for many investors would be ‘who is going to fund this’? However, in this case, the funding is largely there, primarily from China and Chinese state-owned enterprises, but importantly also from Chinese-led international groupings, such as the Asian Infrastructure Investment Bank (AIIB), which counts France, Germany and the UK among its membership and the New Development Bank (often referred to as the BRIC bank).

For me, the critical question is rather, ‘which private sector companies stand to benefit from this visionary project?’


IMPORTANT INFORMATION: All investments involve risk, including loss of principal. Past performance is no guarantee of future results. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

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.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, 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. 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.