Shock Exchange by Ralph W. Baker Jr

Author:Ralph W. Baker Jr. [Baker Jr., Ralph W.]
Language: eng
Format: epub
ISBN: 9780615678788
Publisher: BookBaby

Infrastructure Investing – China

Global leaders have sought similar stimulus packages to spur their economies and sure up their crumbling infrastructure. In November 2008 China announced a 4 trillion yuan ($630 billion) stimulus package. The lion’s share (38%) was earmarked for public infrastructure, which included railway, roads, irrigation, and airport construction. The rest included post-quake reconstruction (25%), social welfare (10%) and technology advancement (9%).3 China’s investment target came directly after President Obama made U.S. infrastructure a priority of his administration.

Infrastructure Investing – India

India meanwhile targeted about $500 billion of infrastructure investments (power plants and roads) around the time of the global financial crisis. The government was hoping to receive about 30% of the necessary capital through private funding. Repairing its crumbling infrastructure is essential if India is to achieve its target of 9% economic growth from 2012 to 2017. India has since increased its five-year infrastructure goal to $1 trillion through 2017.4 Where space exploration or military buildup occupied developed nations in the past, the two largest global economies (U.S. and China), and the world’s second fastest growing major economy (India) are now in a race to sure up its infrastructure to take advantage of future economic expansions.

Infrastructure Investing Politicized?

Nearly 18 months after President Obama took office, hundreds of thousands of unsafe bridges had been passed over for stimulus funds. About 1,300 deficient or obsolete bridges were expected to receive $2.2 billion in stimulus funds for repairs. That compared to over 150,000 U.S. bridges engineers had identified as obsolete or deficient.5 Instead, the president focused the majority of the $790 billion stimulus package on “shovel-ready” projects. The logic being that shovel-ready projects, such as the repaving of roads, would have stimulated the economy in the short-term, unlike others that needed months of planning and design. My initial reaction was that it was not going to matter anyway. Our crumbling infrastructure was caused by decades of willful neglect. That said, turning around the economy would take years of investment and simply letting nature run its course, if at all. Yet the Obama Administration was under the impression that it could alter the economy’s course by the sheer force of the president’s will.

Which Companies Will Benefit

Wall Street embraced Obama’s stimulus packages and predicted which corporations – from consulting firms to makers of construction material – would most benefit. Corporations’ stock prices and takeover prospects rose in lockstep. A review of Sterling Construction by Seeking Alpha not only assumed revenue growth from infrastructure construction, but was critical that a long-term bill had not been passed:

Sterling Construction is a pure-play on transportation and water infrastructure construction … Therefore, for investors seeking focused exposure to heavy civil construction, Sterling Construction is the best investment vehicle … In addition to the economic slowdown, the absence of a long-term federal funding bill for transportation construction has created constrained infrastructure spending … Both transportation and water infrastructure markets have strong long-term growth trends, and Sterling Construction is well positioned to benefit from this. Even with continued uncertainty regarding funding for infrastructure projects, the company should continue to generate steady to higher profitability.

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