Infrastructure Opportunity 
Getting Bigger All the Time

by Frank Holmes, CEO, U.S. Global Investors | June 13, 2008

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The investment opportunity in infrastructure seems to be getting bigger and better all the time, especially in emerging markets.

Merrill Lynch came out with a new research report that raises the expected spending on emerging-markets infrastructure to $2.25 trillion over the next three years, nearly double its earlier estimate. 

We’re not at all surprised that Wall Street’s spending estimates for infrastructure are climbing fast. 
The governments in these emerging nations have to maintain strong economic growth to keep their jobs, and to do that, they need more ports, airports, railroads, pipelines and other key industrial capabilities.

In addition, the ranks of the middle class in these countries are expanding in a thriving business environment, and these people want more and higher-quality housing, more and better roads for their new cars, and more extensive mobile phone networks.

And on top of that, huge numbers of people are pouring into the big cities from the countryside in search of steady work, and this is exerting pressure on electrical utilities and water systems. 

Rapid urbanization is one of the strongest drivers of the infrastructure boom in emerging markets. In both China and India, for instance, the urban populations are expected to double in the next few decades.

We believe in the long-term sustainability of the infrastructure build-out, and we’re acting on that belief. Our Global MegaTrends Fund (MEGAX) is focused on identifying companies that stand to benefit from this powerful investment theme.

Merrill’s report has a detailed breakdown on where this spending will occur. No surprise, China is at the top of the list at $725 billion, or roughly a third of the total. The previous estimate for China was $400 billion.

The Middle East-Gulf region is next at $400 billion (up from $225 billion), followed by Russia at $325 billion (up from $195 billion), India at $240 billion (up from $110 billion) and Brazil at $225 billion (up from $180 billion). 

There are hundreds of billions of dollars worth of infrastructure opportunities elsewhere in the emerging world: $120 billion in Mexico, $65 billion in Turkey, $60 billion in South Africa and $45 billion in central and eastern Europe.

In the U.S. and other developed nations, the emphasis is on repairing and rebuilding aging infrastructure. 

Last week in Washington, big-city mayors in the U.S. asked Congress for help with their massive infrastructure repair needs. A bill in the Senate proposes a $60 billion “National Infrastructure Bank” to finance such projects.

That number is just a small fraction of the $1.6 trillion in spending that the American Society of Civil Engineers says is required over the next five years just to fix existing roads, bridges and other vital infrastructure.

But for investors, it still represents a huge long-term investment opportunity. 

Copyright © 2008 Frank Holmes
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Frank Holmes | CEO, U.S. Global Investors | San Antonio, TX USA | Email | Website

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