Infrastructure investment: Is this a sure sign of a Chinese slowdown?

Is this a sure sign of a Chinese slowdown?

29 June 2017

Infrastructure investment has been a great source of interest for investors in the wake of Donald Trump’s election as US president, with his campaign pledge to spend US$1 trillion on US infrastructure projects clearly playing on their minds. Away from President Trump’s Twitter feed and speeches, China is a more pressing concern.

While the country is trying to rebalance to become a more consumption-driven economy, overcapacity in the construction industry remains a big issue. The country is considerably overbuilt in relation to GDP. Worryingly, if a slowdown in GDP growth occurs, we expect the Chinese government to try to plug the gap with further building. As such, with overcapacity remaining a problem and rebalancing of the economy continuing, we believe it is best to avoid businesses related to Chinese construction, including materials and building companies.

Nick Moss – Newton, a BNY Mellon company

Tags: infrastructure, Newton

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▼ 2017
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- ▼ June
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► 2015
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  - Show this to your boss: wage increases on the way in USSign-up bonuses for truck drivers in Detroit, Michigan, of between US$10,000 and US$20,000, alongside an increase in people quitting their jobs, show the US recovery is continuing. When it comes to informing monetary policy, Federal Reserve chairwoman,... read more
  - Investment opportunities from crumbling US roadsIn the US a lot of road and bridge infrastructure is paid for through the Highway Trust Fund (HTF). This is funded at the Federal level through the Gas Tax, which has been 18.3 cents per gallon... read more
  - High yield debt: a blockage in the system?One consequence of the widely discussed hunt for yield has been enduringly strong flows into high yield assets. What is perhaps less known is how much those markets have grown over the long term. Net annual flows... read more
  - A race to the bottom?Central banks have engaged in unconventional policies since the onset of the financial crisis in the form of QE, long-term repo operations, funding for lending and, in the US, the Troubled Asset Relief Program. Central banks’ commitment... read more
- ► March
  - Europe’s incredible declining yieldsFor income-oriented investors, the combination of ECB quantitative easing, negative yields and negative interest rates is a real problem. Increasingly they are reallocating their funds into investment grade or high-yield bonds, but also into other interest-bearing asset... read more
  - Bearish on Russia?Russia has been under stress because of the situation in the Ukraine and because of the falling oil price – and clearly, as shown by the data above, this has affected the short-term outlook for growth. But,... read more
  - China: not deleveragingWe have been watching the build-up of debt in China for some time in line with our Debt Burden theme. Indeed, the pace and extent of the debt acceleration in China is behind our major concern for... read more
  - Breaking free of the ‘fragile five’ misnomerIndia was previously plagued by a high fiscal deficit, bad policy choices, high commodity prices, an extended credit cycle, high inflation and a weak currency. Now it has a credible and strong-willed central bank, a reform-minded government,... read more
- ► February
  - Chinese FDI into Europe has doubled since 2013Chinese foreign direct investment into Europe hit US$18bn in 2014, almost double 2013’s level. Over the past four years, the average spend in the region by Chinese investors has been US$12bn a year, suggesting a slowdown in... read more
  - Uncovering alpha in unexpected areasFor a country of eight million people, Israel has long been punching above its weight in the technology sector. Israel’s expertise is certainly recognised by the global giants of technology, with Intel, Microsoft, Google and many others... read more
  - Global M&A hit a post-crisis high in 2014We aren’t surprised to see M&A activity climbing, and, as we discussed in an earlier post (see M&A activity takes off, 3 June 2014), that may continue over the next couple of years for several reasons. Corporate... read more
  - Europe’s year of reckoning: will extremists triumph?Following the victory of the populist left-wing Syriza party in Greece, the old order of European politics seems to be under threat. Across the continent new political parties of the left and right are on the rise. Even... read more
- ► January
  - Will investors continue to buy bonds at any price?The notion of value is often discussed by fund managers but rarely followed. Despite low valuations investors will still buy assets, especially if they are being driven by new information. Take the yields on European government debt.... read more
  - Can central bankers keep the party going in 2015?Equity markets have generated much lower returns since the turn of the Millennium than those investors had become accustomed to prior to the year 2000. Initially high valuation, based on the hope of the ‘TMT’ boom, challenged... read more
  - Energy companies on hot coals?The Carbon Tracker Initiative May report1 (in follow-up to its initial 2013 report 2) has given a new head of steam to the lively debate ignited in the oil and gas industry by drilling down into the... read more
► 2014
- ► December
  - Get smart: the $60 trend catapulting emerging marketsThe advent of low cost smartphones is a game changer in emerging markets (EMs). Whereas in developed markets we already had a fairly extensive network of PCs and laptops, in EMs this was not the case. With... read more
  - Will Japan’s snap election cost it dear?Prime Minister Shinzo Abe has postponed a consumption tax rise originally planned for October 2015, instead opting to call a snap election, but can Japan’s highly indebted government actually afford such a delay? The fiscal hawks worry... read more
  - Surprise victors of a falling oil priceThere is a general misperception the fall in oil price is negative for all emerging markets. In fact many of these countries are net importers which helps improve their balance of payments. For net oil importers a... read more
- ► November
  - Why UK companies’ payout potential is still strongThe traditional UK equity income space is better placed to satiate yield-hungry investors going forward as dividend payout ratios become more consistent with their 15-year average. In a world with muted economic growth, projects with acceptable investment... read more
  - Germany is no superman for eurozone plight Right now, Germany is much better off than it was ten years ago. Unemployment is very low and earnings are rising, but there is little inflation. Public finances are in good shape. The trouble in my view... read more
  - Is the dollar strength positive or negative for consumer staples? Overall, third-quarter earnings season for the consumer staples sector has remained largely underwhelming, consistent with its recent past. But several management teams have backed away from their bearish stance and begun to speak constructively about the US... read more
  - How falling oil prices have muddied monetary policy watersExpectations of the timing, and extent, of future Bank of England rate rises have changed significantly since the summer. This has coincided with lower inflation readings and a sharp decline in the oil price. At Newton, our... read more
- ► October
  - Pride comes before a fall...Both common sense and history would encourage us towards thinking equity investors have a greater chance of strong returns when confidence is low not high. Likewise, unemployment, car sales and house prices... People are still talking about stocks... read more
  - The week that was…The battle to slow the land gains of the Islamic State in Iraq and Syria continued. With ongoing air strikes from the West and its allies, Islamic fighters advanced apace as they seized a significant portion of... read more
  - The true cost of shortingThe costs associated with an emerging market long/short strategy can be a constraint on upside capture, which is an added consideration for investors assessing increasing offerings in this space. There is the cost of carry if you... read more
  - The week that was…The battle between the West and Islamic State militants intensified. Backed by a number of Middle Eastern states, the US-led air campaign gained additional backing as both the Australian and Canadian governments pledged military support. Canada’s government... read more
  - Bond yields: together but apartBond investors generally like to ride a trend towards convergence, such as when the spread of Spanish and Italian sovereign debt narrowed sharply relative to German bunds following the eurozone crisis subsiding after the summer of 2012.... read more
- ► September
  - Brazil prepares to pass judgement on Dilma’s economic recordWith the first round of Brazilian general election this weekend, President Dilma Rousseff looks in real danger of losing out. With a dubious economic record since she assumed power on 1 January 2011, Dilma has been criticised for... read more
  - The week that was…The Middle East and the battle against the Islamic State of Iraq and the Levant, also known as Isis, remained firmly in the spotlight as the West upped the ante with further air strikes and attempts to... read more
  - Are markets set for a dose of reality?Almost six years on from the US Federal Reserve’s first injection of QE, the landscape created by loose global monetary policy remains somewhat distorted. Despite consistent economic disappointment, the zero interest-rate backdrop has forced investors to chase... read more
  - The week that was…With the conflict in Iraq and Syria showing little sign of abating, US President Barack Obama upped the ante with a prime-time televised address in which he outlined his strategy to “degrade and ultimately destroy” the Islamic... read more
  - Acquisitions boost US companiesOutlook revisions provide a telling measurement of the health and outlook for US companies. Unsurprisingly, they traditionally occur during earnings season, when companies issue their own report cards. This quarter, it’s been all A’s — acquisitions, activists,... read more
  - The week that was...Unrest for the West continued apace as troubles in Ukraine and Iraq showed little sign of abatement. With its interference the wrong side of the Ukrainian border still largely unchecked, Russia looks set to be the subject... read more
  - Abenomics: what’s left in the quiver?We believe the decline in real wages should prove temporary. If firms can charge higher prices without paying higher wages, their profits will increase. Fatter profits will encourage firms to expand their operations and tempt new rivals... read more
  - The week that was…The gold price rose as tensions between Ukraine and Russia showed little sign of easing. The Ukrainian president, Petro Poroshenko, says Russian troops have entered the country while Nato claims more than 1,000 Russian soldiers are operating... read more
  - Markets remain blinded by the lightWhile global headlines focus on continuing unrest in Iraq and worrying geopolitical developments in Syria and Ukraine, the mood among investors in global capital markets remains remarkably benign. Global market volatility remains unusually low by historic standards.... read more
- ► August
  - Sentiment v reality?For a little while now our view has been that high yield as an asset class is expensive. To the extent we own high yield we have been very selectively buying credits where we like the fundamentals... read more
  - The week that was...Away from the front pages for the past couple of months, the situation in Iraq – where Islamic State militants have made rapid progress in their attempt to take control of the fractured country – has recaptured... read more
  - Russian import ban offers food for thoughtGeopolitics has once again taken centre stage. Certain regions are feeling the effects of the Russian imposed ban on Western imports more than others. In Eastern Europe, the Baltic States ship roughly 15% of their exports to... read more
  - From Russia without loveThe latest release of the German Manufacturing PMI shows a continued economic expansion in Germany and similar data from the IFO confirm this. Nevertheless, momentum has slowed in the last couple of months; the August Sentix reading... read more
  - The week that was...Following the EU’s announcement of further economic sanctions on Russia following its interference in neighbouring Ukraine, company leaders across Europe warned of the impact on their businesses. The sanctions, deemed the toughest taken against Russia since the... read more
  - Dividend and conquerThe last five years has seen unattainably high dividend growth and numerous special dividends which followed dividend cuts during the crisis. We now expect dividend growth to be more in line with earnings growth. However growth may... read more
- ► July
  - The week that was...A week on from the downing of a Malaysian airliner over Eastern Ukraine, the blame-game was in full flow with the West quick to point the finger at Russia for its continued interference in Ukraine. Meanwhile, the... read more
  - QE - It's a kind of magicThe post-crisis environment seems to be showing positive signs that QE has worked and we can look forward to strong, rising asset prices with minimal volatility. However, beneath the surface of this are the underlying problems existing... read more
  - The week that was...The downing of the Malaysian airliner in Ukraine on Thursday was swiftly followed by renewed bouts of finger-pointing by the Ukrainian and Russian governments, each adamant the other was responsible for the tragedy. Russia’s influence on the... read more
  - Low volatility breeds currency contemptLow volatility in the foreign exchange market has created a very challenging environment for anyone trying to generate returns. Consensus trades have been shaken out and many managers are now reluctant to take aggressive positions. We remain... read more
  - The week that was...Minutes from the Federal Open Market Committee’s June meeting showed the US Federal Reserve hasn’t altered its expectation of an interest rate hike in the second half of 2015, while tapering is in line to be completed... read more
  - Why are retail company IPOs peaking?The strength of Europe’s stock markets over the past two years has encouraged a surge of retail IPO’s. With high valuations and many business models facing long term challenges from the internet, there is an incentive for... read more
  - The week that was...US security dominated the headlines after US homeland security announced it was increasing aviation security amid new concerns about the capacity of al-Qaeda-linked groups to evade existing controls. The UK followed the US’ example. Meanwhile, the battle... read more
  - Stars align for the Philippines Historically overlooked and sometimes just plain ignored, the Philippines has long since shaken off its tag as the ‘Sick man of Asia’. A far cry from its days as a heavily indebted country, the Philippines is now... read more
  - The week that was...News headlines were dominated by continued unrest in the Middle East and stalemate in the Russia/Ukraine crisis. US Secretary of State John Kerry visited Saudi Arabia to discuss the ongoing crises in Iraq and Syria – the... read more
  - China cements its place in construction historyChina has overcapacity problems in many industries, including cement. The country has undergone an infrastructure binge since its post-financial crisis stimulus package in 2008, where capital investment occurred without due concern for the returns it would or... read more
- ► June
  - Inequality StreetThe key beneficiaries of quantitative easing (QE) have been those closest to the money – a small number of individuals who own assets, who run companies and who have access to the cheap debt. The result? Growing... read more
  - The week that was…With relations between Ukraine and Russia already at breaking point, Ukraine’s prime minister ordered his government to prepare for a possible cut-off in natural gas supplies from Russia. This followed failed negotiations with Russian state-controlled Gazprom. Ukraine... read more
  - Brazil v MexicoAs Brazil takes on Mexico in the second round of Group A fixtures in the football World Cup, few eyes will be on the countries’ head-to-head economic battle. But while the Seleção are hot favourites to beat... read more
  - The week that was...Global equity markets were boosted by further good news emanating from the US employment market. While the headline unemployment rate remained unchanged at 6.3%, US employment has returned to its pre-financial crisis level, with the economy recouping... read more
  - Markets downplay Thai coupThe Thai coup on 23 May shocked many outsiders but the country’s historical record of the last two decades suggests there isn’t too much cause for alarm for investors. This is Thailand's 12th coup since 1932 and... read more
  - The week that was...Russia and its ongoing stance on Ukraine continued to dominate the headlines. This follows Russia’s recent announcement of a 30-year gas deal with China – a move that signifies a notable trading shift away from Europe and... read more
  - M&A activity takes offWe have just witnessed one of the strongest starts to the year in M&A in a decade. Financing markets are a key ingredient, as interest rates remain near cycle lows and at absolute low levels for companies to... read more
- ► May
  - Restoring default settingsThe maturity cliff for high yield does not begin to look daunting until 2017. That is one reason why default rates have been significantly lower than their long-term average over the past decade and why they may... read more
  - Fuelling the rise of leveraged loansAfter a hiatus in leveraged loan issuance during the credit crisis, the leveraged loan market is back again, to a large degree this has been driven by CLO issuance. Credit funds also represent another source of investment capital... read more
  - The week that was…Pro-Russian rebels declared a resounding victory in referendums on self-rule in the eastern regions of Ukraine. The EU had denounced the referendums as illegal and moved closer to extending sanctions to companies, as well as individuals, linked... read more
  - Waiting for the outcome of India's electionThe country has done well in recent weeks in anticipation of a change in government but we think maybe there is too much optimism there. In India it is quite difficult for things to change quickly on... read more
  - Going for goldLooking ahead, we feel that economic growth will disappoint, particularly given the negative backdrop of demographics and the over indebtedness of the Western world. This disappointment will arguably lead to some level of restructuring, reneging or debt... read more
  - The week that was…The world’s financial headlines remained centred upon the Russia/Ukraine crisis as the potential impact of economic sanctions on Russia continued to be speculated upon. Meanwhile, US President Barack Obama suggested further sanctions were imminent. It was a... read more
- ► April
  - ‘Big Tobacco’ eyes E-cigarettesThe development of electronic nicotine-delivery systems (ENDS), or E-cigarettes, is arguably the most disruptive innovation in consumer products over the past century and the market potential is substantial. Today, the global market stands at just over US$3bn... read more
  - Deflation: the spectre at the feastChina may be on the brink of becoming a deflationary influence on the world. In the wake of the global financial crisis China embarked on a credit-fuelled investment boom, the like of which the world has never... read more
  - The week that was…The emerging markets dominated headlines as fears of a sustained Chinese economic slowdown refused to abate. Meanwhile, rhetoric with regards the tapering of the US quantitative easing programme continued apace. In its March release, the US Federal... read more
  - The rise of CoCo issuance continues…We suspect there has been some indiscriminate buying of CoCos as investors have been attracted by the high coupons. We believe CoCos are mispriced and therefore fundamental credit analysis is key. Some fixed income investors may not appreciate the... read more
  - The week that was…The world’s financial headlines continued to focus on Russia, its annexation of Crimea and the possible economic ramifications of sanctions from the West. Meanwhile, emerging markets also remained firmly on the agenda. Elsewhere, the US economy added... read more
  - Taxing times for JapanIn 1997 the Japanese government engaged in fiscal retrenchment and raised the consumption tax from 3% to 5%. Soon after the policy came into force, there was a recession and a sharp increase in Japan’s government debt-to-GDP... read more
  - The week that was…High level talks were ongoing between Russia, the US and the EU as Crimea continued to dominate international politics. Meanwhile, speculation over the timing of the end of Fed’s quantitative easing programme continued apace following suggestions by... read more
  - Is the market listening to a different tune?Since the second quarter of 2010, US negative earnings preannouncements have far outweighed positive ones. Yet the S&P 500 has barely stuttered. Through debt-fuelled share buybacks and other means, corporates are doing their best to mask the... read more
- ► March
  - The week that was…Russia continued to dominate the headlines as it refused to waver on its hard-line Crimea stance. Meanwhile, talk intensified over the possible timing of an end to quantitative easing. There was also greater optimism with regards to... read more
  - Relying on the stateWhen investing in emerging markets, investors should pay close attention to the identities of fellow shareholders. Given that almost 30% of the MSCI Emerging Markets Index is owned by governments*, including large companies such as Petrobras, it... read more
  - The week that was…Russia remained at the top of the headline hotlist as the West put pressure on President Putin to withdraw from Crimea. The US led the way in reprimanding the Russian government and threatening economic sanctions. Elsewhere, tensions... read more
  - EM currencies: not all weakness is badEmerging market currencies have been at the forefront of negative sentiment in recent times, yet to assume all currencies are highly volatile is inaccurate. Over the last six months a currency adjustment has taken place, we believe,... read more
  - The week that was...Russia rose to the top of the headline pile following intervention in neighboring Ukraine. This action prompted consternation in the West and in the US, in particular. Meanwhile, the US government continued its efforts to broker an... read more
  - Putting seats under US bumsCorporate capital expenditures are on the cusp of a sustained increase in spending levels. We believe one of the early beneficiaries will be office furniture, which has been at depressed expenditure levels over the past decade. The... read more
- ► February
  - Vantage PointWhat’s in the news shows the top ten most mentioned themes relevant to financial markets in order of their ranking at the date shown. The bar height shows the frequency of the coverage of each theme in... read more
  - As safe as houses… (again)?UK housing market data suggests the UK once again finds itself in a cycle of consumer spending supported by credit rather than wage gains. Is history repeating itself? Peter Hensman, global strategist at Newton.
  - Vantage PointWhat’s in the news shows the top ten most mentioned themes relevant to financial markets in order of their ranking at the date shown. The bar height shows the frequency of the coverage of each theme in... read more
  - The beginning of a long-term recovery?The recent political and economic turnaround in Japan is only the beginning of a long-term economic recovery. With unprecedented political will and support for reform firmly in place, Japan is at a major inflection point with the... read more
- ► January
  - Vantage PointWhat’s in the news shows the top ten most mentioned themes relevant to financial markets in order of their ranking at the date shown. The bar height shows the frequency of the coverage of each theme in... read more
  - A contrarian indicatorBecause of the importance of small businesses to the job-creation and growth dynamics of the US economy, investors often consider current small-business sentiment as a proxy for where the market should reside. In reality, a low level... read more
  - Vantage Point What’s in the news shows the top ten most mentioned themes relevant to financial markets in order of their ranking at the date shown. The bar height shows the frequency of the coverage of each theme in... read more
  - Vantage PointWhat’s in the news shows the top ten most mentioned themes relevant to financial markets in order of their ranking at the date shown. The bar height shows the frequency of the coverage of each theme in... read more
  - Europe’s issues growingMany issuers coming to the market have increased levels of leverage while issuing bonds with weaker covenants. These are the types of issues we prefer to stay away from. Longer-term, the growing number of poorer-quality deals coming... read more
  - Vantage PointWhat’s in the news shows the top ten most mentioned themes relevant to financial markets in order of their ranking at the date shown. The bar height shows the frequency of the coverage of each theme in... read more
► 2013
- ► December
  - Mexico’s manufacturing mightMexico versus China; the outsourcing battle is on. While Mexican wage inflation has been broadly flat over the past 10 years, China’s continues to rise – they are now direct rivals. Increasingly competitive as an outsourcing location,... read more
- ► November
  - Vantage PointWhat’s in the news shows the top ten most mentioned themes relevant to financial markets in order of their ranking at the date shown. The bar height shows the frequency of the coverage of each theme in... read more

A parting of ways for the US and Europe?
An uptick in Eurozone economic data as well as relative political stability are among the factors most likely to drive a wedge between the performance of the US and European economic blocs in coming months. Recent PMI readings in Europe were far better than expected, with some modest semblance of inflation coming back into the system. The ECB acknowledged as … read more
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 … read more
How are European fund selectors allocating to high yield?
Growth in the US and Europe should be sufficiently positive to support earnings momentum this year, keeping defaults in check. However, there remains a risk from increased protectionism, due to President Donald Trump’s policies. Credit fundamentals remain solid, helped by robust economic conditions and decent earnings growth. Despite the significant tightening in yields and credit spreads, the high-yield sector still … read more
The chart that tells the truth about US growth and its importance
The three largest economic areas in the world are growing: China, the US and Europe. They are growing at different rates but compared with last year when people were really concerned about Chinese growth disintegrating and the lack of growth in Europe the trends are improving. While the US still contributes the largest amount to global GDP growth, the phrase … read more

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