Comeback for infrastructure investment: Who Profits?
Renewable energies, energy security, electrification, deglobalization and digitalization are some of the biggest challenges of our time and can only be met through massive investment programs on the part of the state and companies. Birgitte Olsen, Head Entrepreneur Strategies at Bellevue Asset Management, explains which industries and companies should benefit from this secular theme.
The last few decades have been characterized by a steady downward trend in capital investment, especially in Europe and the USA. While capital spending by U.S. industry still grew by more than 5% p.a. in the years 1980 to 2001, it fell back to below 3% in the following two decades. We even had to deal with an extreme phase of underinvestment in many sectors after the global financial crisis of 2007/08. This trend is now undergoing a reversal. An above-average increase in capital investment of 8.7% p.a. is expected for the years 2019 to 2024.
A new megatrend
Due to the massive US investment programs, one can now speak of a new megatrend. The Inflation Reduction Act (IRA) passed in August 2022 is a particular contributor to this. Over the next ten years, around USD 300 billion is to be invested in deficit reduction and USD 369 billion in energy security and climate protection programs in the USA. In addition, there is the CHIPS and Science Act with a volume of more than USD 50 billion as well as additional, almost equally high private investments for the research, development and manufacture of semiconductors. Accordingly, the current investment cycle is likely still in its early stages. Market strategist and historian Russell Napier speaks of an expected boom in capital investment and the reindustrialization of Western economies.
Turning point also in Europe
Massive investment programs are also being launched in the EU. The European Green Deal and the European Chip Bill are particularly worthy of mention here. The comprehensive Green Deal alone includes access to EUR 600 billion, with which the transition to a modern, resource-efficient and competitive economy is aimed. Additional private investment is also expected.
Investment Opportunities
From an investor's perspective, the dynamics and extent of these developments offer a wide range of investment opportunities, including for Swiss and European companies. For us as fundamentally oriented stock pickers, the global infrastructure transformation plays a key role in the positioning of our Bellevue Entrepreneur funds. In the Bellevue Entrepreneur Swiss Small & Mid fund, up to 30% of the target companies are direct or indirect beneficiaries of this long-term trend. These include VAT, Inficon, Belimo, LEM, Gurit and Huber + Suhner, to name a few. Below are three selected and exciting examples:
- IoT as a key technology for Industry 4.0: As a leading IoT provider, the Swiss company U-Blox is very well positioned to benefit from the digital and global development. The growth and profitability potential of the company is still underestimated, so the stock has great upside potential from a valuation perspective.
- Energy transition creates new winners: Another crucial area is energy supply. The world needs more energy, immediately for more security and independence of supply and prospectively for a sustainable future. For the end markets of natural gas, solar photovoltaics and hydrogen, Burckhardt Compression's technology in the field of compressor solutions is indispensable. Gigantic investments are being made worldwide to drive the energy transition. With a global market share of approximately 40% to 50%, it is not surprising that Burckhardt recorded a record order intake of CHF 1.3 billion in the last fiscal year. The growing hydrogen sector in particular offers interesting opportunities. The increasing demand for hydrogen as a clean energy source and the need for liquefaction by means of compressors for transport and storage open up growth opportunities. Hydrogen production capacities are expected to increase 10-fold by 2030.
- There is no way around logistics providers: In all countries where construction spending on new production facilities is increasing as a result of re- and nearshoring, new intralogistics capacity is needed along the entire value chain. These shifts in capacity and material flows require advanced solutions, where leading intralogistics providers such as Interroll and Kardex are benefiting. These niche suppliers are helping to automate storage, retrieval and material handling systems, which are increasingly a critical cost and efficiency component. The increased demand here is due to various factors, including government subsidies for the production of strategically relevant technologies and the need for safe and efficient logistics.
Conclusion: Infrastructure investments ahead of long-term trend
There is currently a driven boom in capital investment in the West, driven by strategic and political motives. This global cycle of infrastructure investment is a long-term trend that will be with us for at least the next decade. Companies that want to succeed in this new "gold rush" are those that offer innovative technologies, indispensable services, and comprehensive solutions - including logistics service providers, energy infrastructure specialists, and IoT solution developers.
Source: Bellevue Asset Management AG. Bellevue is a specialized asset manager with core competencies in healthcare strategies, alternative and traditional investment strategies, listed on the SIX Swiss Exchange. The information and data contained in this release in no way constitute an offer to buy or sell or a solicitation of an offer to subscribe for securities or financial instruments. The information, opinions and estimates conveyed herein reflect an assessment at the time of issue and are subject to change at any time without notice.
