Unprecedented times. The global outbreak of Covid-19 has brought the world and its economy to a standstill, highlighting the importance of sustainable and resilient infrastructure (healthcare, water, power, telecommunications). Countries with fragile infrastructure have less capacity to handle crises, so they will need to increase their infrastructure investments. This is especially crucial in the context of health security and rapid urbanisation.
The New Silk Road routes. A significant first step in this direction was the Belt and Road Initiative (BRI, also referred to as the New Silk Road), which was proposed by the Chinese government in 2013 with the aim of promoting regional and global integration along two main conduits, each underpinned by significant infrastructure investments: the Silk Road Economic Belt (the ‘Belt’) and the New Maritime Silk Road (the ‘Road’). China’s global development project has continued to grow in the years since, with the BRI extended beyond just infrastructure construction to embrace also technology infrastructure (the Digital Silk Road) and it is now moving to a new phase called the Healthcare Silk Road. It has been stated that more than 130 countries have officially signed collaboration agreements so far, representing more than 70% of the world’s population, 55% of global GDP, 75% of energy reserves and 30% of the world’s good and services.
Investment opportunities. Opportunities surrounding the New Silk Road are numerous and spread among all participating countries, especially those with a relatively large demographic dividend and a rapid urbanisation process. For these countries, spending under the BRI represents an opportunity to close their infrastructure gaps and contribute to broader economic development thanks to positive spillover effects from infrastructure and foreign direct investments. It is important to look at the sectors that are set to directly or indirectly benefit from the trade and economic growth the BRI will generate. Within those sectors, investors should favour highly profitable companies with solid balance sheets, sound multiplies and double-digit revenue growth.
Investment approach. Investing in the BRI countries by adopting an unconstrained, flexible approach gives investors the maximum potential to access a varied set of opportunities across a range of geographies, sectors and asset classes. The same approach helps to exploit relative value opportunities across the capital structure of companies and manage drawdown in different cycles. When approaching such investments, investors should combine a blend of top-down and bottom-up approaches to identify those companies that are best placed to capture sustainable economic growth.
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