With US$2–3 trillion of capital expenditure across 68 countries, the New Silk Road, or ‘One Belt One Road’ (OBOR) initiative, is a staggering vision, both in its audacity and reach.
Investors may be salivating at the sizeable infrastructure component of this, whether it be the civil engineering firms drawing up the plans; the construction businesses building the infrastructure or the raw material producers supplying the steel, cement and so on; and further along, the rolling stock manufacturers, or shipping companies that will ply the maritime route.
However, history also points to the wisdom of a more indirect approach. Take the case of the US railroads – the investors who benefited most from this ambitious project were those who backed the producers of the goods that would be transported on the tracks, rather than the businesses involved in laying them.
Likewise, we are more interested in the ‘users’ of this infrastructure – companies whose markets will expand as a result (and therefore opportunities for top-line growth). And, critically, this transcends the physical realm. In our view the positive impact of the ‘Digital Silk Road’, which compliments the more headline-grabbing land and sea links, should not be underestimated. Indeed, companies like e-commerce giant Alibaba (held in the portfolio) should be major beneficiaries of greater connectivity in the countries concerned.
That said, while Chinese businesses are clearly poised to reap rewards, we do not believe OBOR is a one-way story. The geopolitics aside, transport and communication infrastructure is key to unlocking growth and prosperity, and viewed through this lens, the transformative potential of this massive enterprise becomes pretty clear.