Building The Big Investment Picture

China’s new premier, Li Keqiang, has given the green light for an even faster pace of urbanisation of the world’s most populous nation.

President Obama’s visit to Myanmar will likely quicken the extent of economic reforms in a little- known country with a population the size of France.

India’s political centre looks set to announce major reforms, which will quicken long-term growth prospects in South Asia.

These seemingly innocuous facts are interlinked and make for serious long- term investment themes in infrastructure, water, food and economic catch-up by small countries aligned with big ones.

These are all investable ideas with grounding in rapid population growth, the global desire to live in cities, enjoy a better life and to have in your country the increase in living standards of those people living in developed nations.

Of the four BRICs, only China has invested heavily in infrastructure over the last 10 years. Since its entry to the World Trade Organisation (WTO), China has splurged on roads and railways, urban development, ports and airport and power provision.

Over the next 10 years, it’s recognised that this will have to happen in Brazil, Russia and India. All three have had growth that’s much more concentrated on commodity exports or on domestic consumer spending.

This needs to be augmented by development of the means to travel, to distribute goods, to export them, which naturally points to investment themes in industrial metals and transportation companies.

The urbanisation theme though isn’t just about having more people in cities. Those cities need to be living cities where people have access to power, water and sanitation and to reliable sources of electricity and fuels for transportation.

By 2030 it’s estimated that the growth of the world’s population and the extra food demand that comes from people becoming more wealthy and moving to a protein-based diet means that there will be an increase of 40 per cent in global water demand.

Most of this increase will come from industrial and agricultural sources.

This latter demand points towards continued long-term upward pressure on agricultural prices. Productivity gains will play a role, as they always have, in managing the upside, but the sheer weight of population numbers is forcing prices of agricultural products higher.

Protein-based food products require substantially higher water inputs. Populations living in cities use four times the amount of water required by rural people. Investment themes in water tapping, transportation and distribution should be core holdings in portfolios.

Energy for desalination means that energy prices too are heading higher in the long-term.

Brazil is one of the world’s largest sources of fresh water, and will soon become the largest global supplier of soya beans, the main feedstock of the Chinese food industry. Similarly, Canada’s Great Lakes are also important sources of water. Her western states are well known for their oil sands and application for power provision.

Also, Lake Baikal in central Siberia is one of the largest depositories of fresh water. The other theme is large countries in emerging markets pulling smaller countries along with them, as China has done for Vietnam and the US has done for Mexico.

Three areas of interest are very investable. Laos, Myanmar and Cambodia have China to the north, Vietnam to the east and India to the east. They are abundant food producing centres and are increasingly open for business.

Equally, Bangladesh, Pakistan and Sri Lanka are much cheaper bases for manufacturing than neighbouring India. The government of Manmohan Singh is expected to announce new reforms over the next few months that will increase the country’s long-term growth rate and increase the opportunities for its smaller neighbours.

Mongolia – which we have championed for the last two years – is blessed with huge natural resources that will be the obvious inputs for China’s building boom. Mongolia was bankrupt four years ago yet the upside potential is so huge that it is correctly compared to Qatar whose small population has become immensely wealthy.

All of these themes can be accessed through the right mix of investment vehicles.