Asian infrastructure stocks may rise in coming months

Asian infrastructure stocks may rise in coming months

Bloomberg, San Francisco

Asian building and transportation companies maybe among the region's best-performing stocks in coming months as governments boost spending on infrastructure, such as roads and power plants.

PT United Tractors, an Indonesian maker of road-building equipment, has climbed 31 percent in dollar terms this year, amid a 1 percent gain in the Morgan Stanley Capital International Asia-Pacific Index. Italian-Thai Development Pcl, Thailand's largest construction company, has gained 33 percent.

Governments in Indonesia, Thailand and India in the past year have said infrastructure spending is vital to spur economic growth and vie with China for overseas investment.

The three plan to spend more than US$340 billion in the next decade upgrading transport and power networks, in addition to funds allocated to rebuild in the wake of the Dec. 26 tsunami.

"There's going to be some significant infrastructure spending," said Eric Sandlund, who manages $650 million in Asian investments outside Japan for Columbia Management Advisors in San Francisco. Builders will benefit along with makers of cement and heavy equipment and operators of toll roads, ports and airports, he said.

Economic growth in Thailand, Indonesia and India has repaired government finances, hurt by the 1997-1998 financial crisis in Asia that forced them to cut spending and reduce debt.

Indonesia postponed 37 toll-road projects, according to a report in April 2004 by the Asian Development Bank. The Manila- based lender warned the country would face "an infrastructure crisis" if it failed to boost investment.

India's economy may expand as much as 6.9 percent in the year ending March 31, the Ministry of Statistics and Programme Implementation said on Feb. 7. The Thai and Indonesian economies may grow as much as 6 percent in 2005, according to forecasts by the countries' respective central banks.

China increased infrastructure spending by 25 percent in 2003 to $325 billion, according to Chetan Ahya, an economist at Morgan Stanley in Mumbai. The total, including real estate, was nine times what India spent.

The outlays helped attract overseas investors. They pumped a record $61 billion into China last year, a 14 percent increase from 2003, government figures showed. India's government expects its foreign direct investment to triple in the fiscal year ending March 31 to $15 billion.

Indonesian government estimated the country must spend as much as $150 billion in the next five years on infrastructure. The government plans to spend $22 billion on 91 projects, such as roads, rail lines and power plants, this year.

The Jakarta Construction, Property and Real Estate index has risen 10 percent, more than double the 4.6 percent gain in the broader benchmark.

United Tractors and Indonesian cement producers, such as PT Indocement and PT Semen Gresik, may be among the stocks most likely to benefit from the projects.

United Tractors "is a classic infrastructure play," said David Robinson, a director at Prodigy Capital Partners LLP in London, a hedge fund with about $75 million in Asian stocks. United Tractors' shares rose 3.5 percent on Monday.

Indocement, the country's second-largest cement producer by sales, expects to sell as much as 12 percent more cement this year, according to Ria Sjahroni, corporate secretary. Last year, sales rose 8 percent.

Last month, the government said it would need more than $4.5 billion to rebuild Nanggroe Aceh Darussalam and North Sumatra, the provinces hardest hit by the tsunami.

In Thailand, Prime Minister Thaksin Shinawatra has pledged to spend $39 billion on infrastructure projects in five years.

On Feb. 12, The Nation newspaper report, citing Thaksin and other government officials, said that Thailand will spend 521 billion baht ($14 billion) in the next six years to expand Bangkok's railroad system.

Siam Cement Pcl, Thailand's biggest producer, expects local demand to rise more than a minimum 8 percent forecast, Executive Vice President Kan Trakulhoon said on Feb. 2.

In India, Prime Minister Manmohan Singh's government budgeted $13 billion in the current financial year for building roads, railways, ports, airports and phone networks. The outlay amounts to 12 percent of the country's $110 billion budget.

"Indonesia, Thailand, and India all earmarked fairly hefty government spending," said Edmund Harriss, who holds Asian shares in about $400 million of stocks he manages at Guinness Atkinson Asset Management in London.

"A lot of money will have to be spent."