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4 sectors that may benefit from the growth prospects of China's One Belt, One Road initiative

4 sectors that may benefit from the growth prospects of China's One Belt, One Road initiative

In the past few months or even years, many of you may have read or heard about China’s “One Belt, One Road” (OBOR), or “Belt and Road Initiative” (BRI), to connect over 65 countries and 4.4 billion people across three continents. Many news reports and online commentaries have also focused on this topic, with divided opinions.

Through the BRI, China has outlined its plan to take a leadership role in the development of core infrastructure and amenities as well as boost trade and financial ties with partner countries in the region. It will also lay the groundwork for unprecedented Chinese connectivity and cooperation with Eurasian economies.

This is significant, especially after the US exited the Trans-Pacific Partnership (TPP) Agreement in the region, signalling a more “closed-door” approach to its policies. This also makes BRI the focal point in global politics as China wrestles itself into a potential world superpower.

For investors, this worldly affair could provide an opportunity to ride on a wave of growth if you put a little thought into how its impacts and effects could pan out.

One Belt, One Road – A Chinese Trojan Horse or the economic Messiah?


Bridging infrastructure and economic gaps between the more advanced countries and the developing ones within the initiative, the estimated cumulative spending on all projects are likely to fall within the range of US$4-8 trillion.
The BRI spans across the six trade corridors and one maritime route:
1) western China to western Russia;
2) north China to eastern Russia;
3) western China to Turkey;
4) south China to Singapore;
5) south China to Myanmar; and
6) south-western China to Pakistan.

It also includes maritime routes extending from the Chinese coast, through Singapore, to the Mediterranean.

All sectors across the countries mentioned in these corridors and maritime route stand to reap the bulk of the benefits from the BRI. Here are four sectors that could gain the most from this boom in future projects and trade.

Four sectors that will stand to benefit from China’s BRI

Construction


With China intending to bridge infrastructure gaps and improving connectivity, the construction sector is an obvious candidate for growth with more projects added to the pipeline and offering greater scalability for companies.

For those who are well-travelled, you may have already noticed how some these infrastructure projects can help the region. The roads of Bangkok and Jakarta are bursting at its seems. These countries, along with other developing cities in the region, are in need of reliable public metro/train system that can alleviate their traffic woes.

Countries such as Myanmar, Vietnam and Cambodia could pull in more tourism and trade dollars if they had more airports and greater connectivity not within the main cities but throughout their country. This will also give rise to the need for more amenities, such as power grids, water and sewage systems as well as lodging facilities, to be built as connectivity grows.

Indonesia, in totality, would have much better connectivity, and offer a more viable trade and tourist destination, if there were roads connecting most of the over 10,000 islands in the archipelago nation.

The list really goes on with many other nations within Central Asia and even up to Russia, Turkey and Pakistan to reap benefits from this drive to economically invigorate nations in the region.

Consumer & Retail


With more trade expected to occur and better connectivity to establish new trade, traditionally poor regions in the BRI should begin to prosper. Poverty in many of these countries should reduce as the trickle-down effect spreads to benefit people throughout the region.

A simple way of looking at a boom in consumerism comes from the increased demand for labour. Using the construction sector as an example, infrastructure still heavily depends on human labour in the entire construction phase. This should create jobs for a large pocket of the economy.

More advanced jobs in banking and finance will also be created as the region increases its intensity in trade that generally requires payment and financing intermediaries. With stronger trade outlook, lower unemployment and more money being spent, consumerism is expected to grow at a faster pace as well.

Some of the major areas of spending will likely come from consumer staples as more people have access to it. Consumer discretionary spending would also be bolstered as people gradually become more affluent.

Property developers & REITs


On the topic of poverty alleviation, you can expect “China’s Great Migration” – the moving of population from rural regions to cities – to accelerate and occur in other countries as their standard of living improves.

This is not something new, as it is well experienced in Bangkok, Jakarta, Ho Chi Minh City and even Yangon and Phnom Penh already. You can expect to see this on a larger scale as South East Asian countries become more involved in the BRI.

An increase in demand for work will translate to a greater need for more industrial and logistics buildings, commercial offices and residential spaces. The surge in such demand will put more property developers to work, while property managers should be able to earn competitive rental yields.

As the markets mature, these could also represent opportunities for REITs.

Financial institutions


Last but not least, the banks in South East Asia are in the best position to leverage on BRI to expand on the back of a greater demand for financing infrastructure projects, payment functions and fund flows as well as for retail usage.

Developing Asia still relies heavily on the banks for financing as capital markets and population financial literacy are at relatively immature levels in the region. BRI’s main medium for fund flows throughout the Eurasian countries will be highly dependent on banks, especially regional banks that have established presence in most Asian countries.

Banks typically make their profits from the interest in lending out money that they receive as deposits and fees for providing services. With more economic activities leading to an increase in transactions and demand for loans and financing, you can expect the banking sector to prosper and grow their operations with BRI in Asia.

Riding on the BRI waves


China’s determination to lead Eurasian nations and deepen ties will begin with exporting its expertise and flexing its financial muscle. BRI will eventually lead to improvement of infrastructure and connectivity across the region as well as providing jobs and increasing affluence in developing Asia.

As these projects take off and create demand for more peripheral amenities and requirement for products and services, the trickle-down impact should see stronger consumer sentiments leading to opportunities for more trade to occur.

There is no better time to be in Asia. Similarly, there may not better a time to invest in these four sectors as China flex its financial might to improve Asia altogether.

How to invest in BRI?


For ordinary retail investors seeking opportunities to ride on this wave, it is highly unlikely that you can get directly involved with the BRI and its worldly affairs. Nonetheless, you may be able to enjoy the fruits of its success if you own the companies that are likely to benefit from this initiative.

This means understanding how some companies in the region may be able to get a slice of the pie from projects and do some research to spot opportunities the BRI will present. To aid your research, you can use dollarDEX’s Fund Finder to shortlist investments that are concentrated in certain geographic regions or within certain industry sectors.

With the scale of the BRI, you can safely assume it will be rolled out over a long time horizon. In the meantime, you can start a regular savings plan or value averaging plan to invest a regular amount and grow your investment portfolio.