Global Recession - Rebuilding your portfolio as the world rebuilds
In coming years, hundreds of billions in infrastructure spending are
We work to help you and your portfolio benefit from this and other factors in
the changing face of our global economy.
The global recession of 2008-2009 has increased. Global governments have often
responded by announcement of massive stimulus and infrastructure plans. The
United States, China, GCC (Gulf Cooperative Council including Saudi Arabia,
Oman, Qatar, Kuwait, Bahrain and the United Arab Emirates) and other governments
have announced large plans for construction and modernizing networks. In the
United States alone, the infrastructure construction plans are larger than any
since the highway system created in the 1950s. Global projects include roads,
tunnels, bridges, telephone and internet technology and utilities.
The amount of capital dedicated to worldwide infrastructure projects is
unprecedented with over $700 billion targeted in 2010 and 2011. Sectors that
could benefit from this include the more obvious choices of construction and
building materials as well as industrial equipment, metals sectors, engineering,
construction, broadband communications and heavy equipment. Vehicles for
participation in this area include mutual funds and ETFs.
While economists disagree on the effectiveness of the stimulus plans and
infrastructure spending for long term economic growth, there is little
disagreement that the companies directly involved in the infrastructure projects
will benefit greatly.
In addition to the global economic conditions which have led to stimulus
spending plans, there is a growing and strong need for infrastructure
development worldwide. China, Russia, the GCC and other areas have spent
significantly on highway development and other infrastructure projects. China
currently spends 9% of its GDP on infrastructure compared with 5% in Europe and
2.4% in the United States. US infrastructure is crumbling and is falling fast
relative to the quality standards seen elsewhere in the world.
Drawbacks of infrastructure investments are that the spending is controlled by
government bureaucracies which are wrought with corruption and inefficiency. The
spending can take a significant amount of time to reach the beneficiary
companies. Additional dangers include the continuation or worsening of the
global economic downturn and debt crisis which could lead to cancellation or
lack of payment for some infrastructure projects, particularly in the US.
Generally it is a sector worth looking at and may prove less volatile than other
areas with similar growth potential.