Steel in the ground: making the case for US infrastructure renewal

US infrastructure is overdue for upgrade. Chronic underspending on roads, bridges, water, energy and senior housing has resulted in an infrastructure unable to withstand the strain of a growing, mobile and ageing population. For the first time in decades, cyclical, secular and structural trends are aligning, which we believe will usher in a period of investment not seen since the Eisenhower administration. We forecast over US$1 trillion in projects that could be built over the next 10 years. In our view, President Trump’s forthcoming infrastructure plan and emphasis on deregulation, combined with the readily apparent economic need, provide the near-term catalysts necessary to open the floodgates.

Brock A. Campbell, James A. Lydotes, William J. Adams – The Boston Company Asset Management, a BNY Mellon company

US infrastructure is overdue for upgrade. Chronic underspending on roads, bridges, water, energy and senior housing has resulted in an infrastructure unable to withstand the strain of a growing, mobile and ageing population. For the first time in decades, cyclical, secular and structural trends are aligning, which we believe will usher in a period of investment not seen since the … read more

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Busting myths of EM debt

Emerging market debt issuers are often assumed to be inherently less creditworthy than their developed market counterparts, but in our experience the reality tells a different story.

For one thing, in recent years emerging market (EM) default rates have not been materially greater than those in developed market, (DM) and the formers’s bond covenant quality has also tended to be higher on average.

Within the high yield (HY) area of EM debt, fundamentals are also improving and default rates are expected to decline this year.

Comparing default rates for EM corporate HY issuers with those of their US equivalents since 2000, two observations are worth highlighting. First is the close similarity in trend between the two series which suggests global cyclical factors, rather than regional idiosyncrasies, explain a large part of the default experience for both EM and US corporate issuers. Second, the magnitude of default rate has been broadly similar across cycles, with 2002 the only meaningful exception in the period surveyed.

Similarly, when we consider EM Sovereign defaults we can see how credit events have become more of a rarity. Using JPMorgan’s Emerging Market Bond Index (EMBI) Global benchmark to represent the investable hard currency EM sovereign issuers accessible to international investors, only seven EM sovereigns in the index have defaulted since 2000. The adoption of flexible exchange rates, strengthened external balances, reserve accumulation and a move from external to local currency debt issuance go some way toward explaining this shift.

Rodica Glavan – Insight Investment, a BNY Mellon company

Emerging market debt issuers are often assumed to be inherently less creditworthy than their developed market counterparts, but in our experience the reality tells a different story. For one thing, in recent years emerging market (EM) default rates have not been materially greater than those in developed market, (DM) and the formers’s bond covenant quality has also tended to be … read more

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Brazil’s economy rises above the political storm

In our view, the extraordinary thing about Latin America’s largest economy is not the political turmoil that has more or less been par for the course in recent years – but rather the country’s resilience in the face of such upheavals. Far from hitting the buffers, the economy continues to make headway, while capital inflows have remained steady. Year-to-date, for example, Brazilian equities returned 21.1%, while over 12 months the return has been 24.6%. This compares well with both developed market equities (the UK, for instance, returned 11.8% year-to-date and over 12 months) and many other emerging market countries (Colombia, for example, with 14.4% year-to-date and 11.0% over 12 months)[1].

Two things have helped steady the ship. First, timely action from the Central Bank of Brazil brought inflation under control. Second, a reform programme under the auspices of Henrique Meirelles, finance minister, has done enough to give investors confidence in Brazil’s forward trajectory. Here, a key step is a plan to overhaul the country’s generous pensions system. Should Congress approve the plan, this should help address Brazil’s budget deficit and provide a boost to the economy.

Rogério Poppe – ARX, a BNY Mellon company

[1] FTSE All World Index, US$ as at 31 August 2017

In our view, the extraordinary thing about Latin America’s largest economy is not the political turmoil that has more or less been par for the course in recent years – but rather the country’s resilience in the face of such upheavals. Far from hitting the buffers, the economy continues to make headway, while capital inflows have remained steady. Year-to-date, for … read more

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How many man hours to turn on a lightbulb and why should investors care?

Technological progress can have surprising consequences. Take the cost of producing light, for example.

The environmental economists Roger Fouquet and Peter Pearson have retraced this development in England. One hour of light (referred to as the quantity of light shed by a 100-watt bulb in one hour) cost 3,200 times as much in 1800 in England as it does today, amounting to just over 150 of today’s US dollars. In 1900, it still cost around 5 dollars. By 2000 the cost was 5 US cents.

This technological advance can also be thought of in terms of the amount of time an average worker needed to labour in order to earn enough for the 100-watt bulb to glow for an hour. In 1750 BC, the people of Babylon used sesame oil to light the lamps, and had to work for 400 hours to produce the said amount of light. In around 1800, using tallow  candles, 50 hours of work was required. Using a gas lamp in the late 19th century, three hours were necessary. Using an energy-saving bulb today, you will have to work for the blink of an eye – a second. This amounts to a phenomenal advance in productivity and thus prosperity.

Over recent decades, the combination of a larger pool of global labour, transformative technologies and the expansion of global value chains has led to a massive supply shock that has generated a wave of ‘good’ disinflation which advances prosperity for the world’s population as a whole.

Brendan Mulhern – Newton, a BNY Mellon company

Technological progress can have surprising consequences. Take the cost of producing light, for example. The environmental economists Roger Fouquet and Peter Pearson have retraced this development in England. One hour of light (referred to as the quantity of light shed by a 100-watt bulb in one hour) cost 3,200 times as much in 1800 in England as it does today, … read more

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