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Are You Ready For An Infrastructure Boom In Asia?

Credit: Day Donaldson

It is official: The race to dominate the infrastructure scene in Asia has begun.

Last week, Japan announced that it’s looking to provide up to US$110 billion in aid to infrastructure projects in Asia; this comes hot on the heels of China’s launch of the new Asian Infrastructure Investment Bank (AIIB). The bank, which is to be led by China, is expected to be operational by the end of this year and have US$100 billion to lend.

If we combine the resources available from the AIIB and Japan’s new plan, we’re looking at US$210 billion in capital that’s primed and ready to help the construction and development of infrastructure projects in Asia. With such a huge amount of funds being involved, what might some of the effects be for industries and companies that are involved with infrastructure?

It’d be reasonable and logical to expect a boom in infrastructure projects in the region when Japan and the AIIB start deploying the billions they have at hand.

Although Singapore does not have a large infrastructure industry, there still are a few resources and building materials suppliers here. For instance, there’s Straits Trading Co Ltd (SGX: S20); the company has a large metal and mineral resources operation through its investment in Malaysia Smelting Corporation Berhad. There’s also Pan-United Corporation Ltd  (SGX: P52), which supplies cement and ready-mixed concrete to many development projects within Southeast Asia.

With a lot more capital set to flow into the infrastructure space in the future, these two companies  might stand to benefit.

Some risks to note

But, we have to bear in mind that politics, as much as economic benefits, may shade the thinking of how Japan and the AIIB channels the resources they have. In addition, there’s also the risk of over-investing we have to consider given the potential amount of capital that can be sloshing around in the infrastructure space in Asia.

These are things investors should be mindful of when looking at infrastructure-related plays.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.