Steady growth opportunities in infrastructure development: a beacon amidst financial volatility and chaos
Investing in infrastructure is a smart move for those seeking a stable yet profitable haven for their capital, particularly in turbulent times. Infrastructure is often seen as a "shock absorber when wider markets turn volatile," according to Steven Kibbel, financial planner and chief editorial adviser at Gold IRA Companies.
Emerging markets, with their robust economic growth and increased need for urban infrastructure updates, are driving demand in this sector. Today, these economies account for over half of global growth, a figure projected to reach 65% by 2035, according to Varun Jain, chief revenue officer at index provider BITA.
The Asian, Latin American, and African regions are projected to require about $6.5 trillion in infrastructure investments by 2035. This growth is expected to boost infrastructure investment in urban centers as rural populations migrate to cities, further driving demand for improved services such as water supplies, reliable roads, and faster broadband services.
However, investing in emerging-market infrastructure isn’t straightforward. Many emerging nations might impose restrictions on utility operators, which, coupled with political instability, can elevate asset risk. Moreover, the limited number of listed emerging-market utilities makes direct investment challenging. Nevertheless, governments in emerging markets are increasingly looking to attract foreign private investment to boost economic growth, allowing investors to invest directly in various projects, such as ports in Brazil, airports in Mexico, and Thailand.
Developed economies are also investing heavily in infrastructure. Over the past 15 years, numerous Western governments have cut back on infrastructure expenditure to manage deficits. This approach may have offered short-term fiscal relief, but it has left legacy infrastructure neglected. Neglect in infrastructure maintenance has become increasingly apparent, with problems like potholes on roads and blackouts in power grids becoming more common.
In response, governments are shifting their focus towards infrastructure investment to sustain economic growth. Public-private partnerships and the sale of older assets to private firms enable governments to engage private sector expertise in infrastructure development. Additionally, some countries, like Germany, are adopting a more direct fiscal approach, rewriting debt brake rules to boost infrastructure investment.
Beyond emerging-market growth and infrastructure updates in developed nations, the expansion of the digital economy and the growing need for clean energy will further drive investment in infrastructure. The digital economy is significantly dependent on infrastructure, and exponential growth requires substantial investment in data centers, telecommunications networks, and power generation facilities. Artificial intelligence (AI) and cloud computing growth have further amplified demand for power, while the demand for more sustainable infrastructure remains high.
Investing in infrastructure can offer both defensive players and those seeking growth opportunities. Select the right investment vehicle for the desired risk-return profile. Whether it’s actively managed funds like the Kempen (Lux) Global Listed Infrastructure Fund or the iShares Global Infrastructure UCITS ETF, exploring these investment opportunities can lead to attractive returns and a valuable addition to portfolios.
- Although investing in emerging-market infrastructure can be challenging due to political instability and restrictions, some governments are seeking foreign private investment to boost economic growth, allowing investors to invest directly in various projects like ports in Brazil or airports in Mexico.
- The expansion of the digital economy and the growing need for clean energy will drive further investment in infrastructure, as substantial investment is required for data centers, telecommunications networks, and power generation facilities to support exponential growth in artificial intelligence (AI) and cloud computing.
- The demand for sustainable infrastructure is also high, which investment trusts like the Kempen (Lux) Global Listed Infrastructure Fund or the iShares Global Infrastructure UCITS ETF can cater to, offering both defensive players and growth-seekers attractive returns and a valuable addition to their portfolios.
- While sports and lifestyle choices are personal preferences, one's financial lifestyle can be impacted by investing wisely in diverse assets such as infrastructure, with gold often serving as a traditional hedge against market volatility and tariffs potentially influencing the profitability of certain infrastructure investments.
