Macquarie Bank experts say there has never been a better time for investing in infrastructure.
Macquarie Private Wealth’s Martin Lakos said the Australian economy needs more people and companies investing in infrastructure to replace the significant growth gap created by the end of Australia’s mining boom.
He cited the US as an example of an economy that had reinvented itself around IT and innovation, and was now tracking at ‘normal settings’ economically, with a rally in consumer confidence.
Lakos described Europe as “steady but unspectacular”, Japan as on target for growth for the first time in decades, India as poised for 7.4 per cent growth while it embarks on ambitious reform, and China is “defending a more stable 7 per cent GDP growth”.
He said while business confidence in Australia was improving, consumer confidence, which drives 50 per cent of economic activity, was still weak and this was holding back growth.
His colleague John Pickhaver from Macquarie Capital painted a similar picture, explaining that while mining investment has fallen, other infrastructure spending hadn’t come through.
“Residential construction is up, but it’s not enough to fill the gap. Transport and utility construction is not replacing mining investment,” Pickhaver said.
He explained Australia’s superannuation funds currently have assets of around $2 trillion, which is forecast to double in the next decade.
They are looking for long-term and stable cash flow, predictable and consistent demand and high barriers to entry. However, there are a limited number of projects to invest in relative to the capital that is available.
“Residential construction is up, but it’s not enough to fill the gap. Transport and utility construction is not replacing mining investment.”
As a result, the cost of funds has reduced due to competition, and the definition of infrastructure has evolved, with ‘non-core’ assets such as renewables, waste and telecommunications now a greater part of the mix, as investors look for opportunities outside the ‘core’ areas of airports, toll roads and regulated utilities.