Paul Dietrich's Global Investing Trends Report

Isn't This Trend Applicable In Other Emerging Markets Too?

Posted June 12, 2008 · 0 Comments

Dear Paul,

 

In your last Foxhall Global Outlook you talked about how the next big GLOBAL SUPER-CYCLE INVESTMENT TREND was investing in those companies and commodities that will be used by China over the next decade in their trillion dollar infrastructure investment programs. Isn’t this trend applicable in other emerging markets too? I hear many other emerging markets are spending big sums on their own infrastructure development.

 

You are right! Many emerging markets around the globe are flush with U.S. currency reserves. These countries have decided that they would rather spend those hard currency reserves on developing their own country’s infrastructure rather than invest in U.S. Treasury Bonds, given the fact that the U.S. government is paying rates on U.S. Treasury bonds that yield less than the inflation rate, in addition to the dollar continuing to loose its value.

           

Over the next decade, we believe investing in the commodities and companies that will be directly benefiting from the infrastructure spending of Asian countries and other emerging markets will be an excellent way to maximize your investment dollars over

the next decade!

 

The Biggest Investment Boom in History

 

Investment analyst Nicholas Vardy estimates that emerging economies will spend an estimated $1.2 trillion on roads, railways, electricity, telecommunications and other infrastructure projects just this year. He says, “That’s the equivalent to 6% of their combined GDPs—and twice the percentage being invested in developed economies. Even at the height of the United States' infrastructure spending—the expansion of railways in the mid-nineteenth century—total investment barely hit 5% of GDP. Today, the equivalent number in China is 12%. “Laggard” India intends to almost double the infrastructure investment share of its GDP from 5% to 9% within the

next five years.”

 

Morgan Stanley predicts that emerging economies will spend $22 trillion on infrastructure between now and 2018. Australia's Macquarie Bank puts the number at $30 trillion through 2030. Last year, Brazil announced a four-year plan to spend $300 billion to modernize its infrastructure. The Indian government has penciled in $500 billion in infrastructure projects in its latest five year plan. Russia now has plans to construct 39,000 miles of new roads and 5,300 miles of railways by 2015, including an eight-lane expressway that will link St. Petersburg to Helsinki and Moscow by 2015.

 

Vardy also notes, “This investment boom isn't limited to emerging economies. A casual drive through the Northeast corridor of the United States will confirm that much of the United States' roads, airports, bridges and tunnels are in sore need of upgrading. The American Society of Civil Engineers estimated that $1.6 trillion would be required during a five-year period to bring U.S. infrastructure back into shape.”

 

The Biggest Investment Boom in History: The China Factor

 

 Vardy also echoes what I discussed in last weeks Foxhall Global Outlook that “unsurprisingly, the biggest player in the infrastructure boom is China. Four out of 10  dollars spent on infrastructure during the next 10 years will be spent by Asia's emerging economic giant. China's commitment to infrastructure has been relentless. Between 2001 and the end of 2005, it spent more on roads and railways than it did in the previous 50 years combined. By the end of 2007, China had built some 33,500 miles of roads, thereby achieving in 17 years what the West took 40 years to accomplish. And its remarkable  pace is continuing. Between 2006 and 2010, China will invest $200 billion in railways alone, four times more than in the previous five years.

 

Like the Olympics, China's infrastructure boom is a collection of trophy projects. Beijing's new airport terminal is the world's largest. The floor space is 17% bigger than London's Heathrow—the world's busiest airport. Designed in the form of a Chinese dragon, it was planned and built in a mere four years by an army of 50,000 workers. And China plans to ADD ANOTHER 97 AIRPORTS BY 2020 to the 142 it had at the end of 2006. The number of airports handling more than 30 million passengers a year will grow from 3 to 13.

 

Bullet trains are another high profile endeavor. Costing $30 billion, the Beijing-Shanghai high-speed line is the most expensive project in China's railway history. An 800-mile bullet train between Beijing and Shanghai—the equivalent of going from New York to Chicago—will reduce the travel time between the two cities to a mere five hours.

But the ultimate trophy is yet to come. A plan published by the Ministry of Communications in 2004 mentions a highway from Beijing to Taipei, Taiwan, to be completed by 2030. The technical challenges of crossing the 94-mile Taiwan Strait aside, the document does not suggest how to tackle the even bigger political problem of reaching an agreement with Taiwan.”

 

The Biggest Investment Boom In History: A No Brainer

 

Here's what Vardy says he particularly likes about the infrastructure investment boom:

 

“Infrastructure spending provides the ultimate bang for the investment buck. Initially, a wide range of infrastructure companies—steel, mining equipment and construction companies—are set to benefit from an unprecedented construction boom. But infrastructure is a gift that keeps on giving, itself boosting economic gains. The World Bank estimates that a 1% increase in a country's infrastructure stock generates a 1% increase in the level of GDP. Once you understand that, it's easy to see how East Asia's investment in infrastructure explains a large part of its faster growth compared to Latin America.

 

Long-Term Trend Investment Advice: “Use Your Eyes and Plagiarize”

 

And like the best global megatrends, the infrastructure boom is not about re-inventing the

wheel. The late Nils Taube, one of the United Kingdom's most esteemed fund managers,

noted at the London Junto conference last year that the secret to his investment success was to "use your eyes and plagiarize." Unlike venture capitalists in Silicon Valley, investors in global infrastructure don't have to uncover the next Google to make money. Infrastructure assets offer investors remarkable benefits: there is little competition; they offer essential, non-substitutable services; and they provide stable cash flows linked to inflation during a period of several decades. After all, people use and pay for roads, bridges and ports everyday.”

 

I would also add that once engineering plans are completed, an investor can know, with some specificity, how long each project will last and the amount of commodities that will be used and the major companies that are receiving contracts and will profit over a long period of time

.

Your Investment Portfolios At Foxhall Capital Will Benefit From This Long-Term Investment Trend

 

Foxhall Capital fully understands and appreciates that this is going to be one of the biggest investment booms in history. This is going to be like getting into steel before World  War II or investing in Microsoft in the early 1980’s.

 

The key is to see and identify the Global Super -Cycle Investment Trend Early And Act On It.

 

At Foxhall Capital we are already positioning portfolios through our investments in hard asset commodities, our Pacific Rim and Emerging Markets investments and investing in those U.S. companies that will be primary beneficiaries of this global infrastructure spending boom.

 

Our FOXHALL CAPITAL clients will be invested early to take maximum advantage of this major global investment trend over the next decade.

 

Until next week…

 

—Paul Dietrich

dietrich@foxhallcapital.com

800-416-2053

 

Disclosure: The opinions and portfolio information provided in the Foxhall Global Outlook are subject to change at any time, and are not to be construed as advice for any individual nor as an offer or solicitation of an offer for purchase or sale of any security. Client accounts may differ from model allocations due to many reasons. All investment strategies offer the potential for loss as well as gain. Individuals should consult with their financial professional to determine an investment strategy appropriate for their objectives, risk level, and time horizon prior to investing. Past performance is not a guarantee of similar future performance.

 


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About Paul Dietrich
Paul Dietrich is the Chairman, CEO and Co-Chief Investment Officer of Foxhall Capital Management, Inc. (Foxhall).  Foxhall currently manages investments for individuals, mutual funds and private institutions throughout the United States. Paul Dietrich is also a portfolio manager to a publicly traded mutual fund, the Foxhall Global Trends Fund.
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