CHICAGO As global economies from Beijing to Berlin struggle to keep their heads above water, a new wave of stimulus spending is under way. Given that infrastructure spending is almost always a function of population growth - which does not seem to be slowing down in emerging markets - this is a potent trend if you are a long-term investor.
While any nascent U.S. plan depends upon the outcome of the November election, the agenda for other countries is full speed ahead. The Chinese government recently announced new program of $1 trillion yuan ($157 billion) in infrastructure spending - its second major wave since 2008. And while most of Europe is still in a swoon, alternative energy is a big part of the infrastructure boom in Germany and Japan, where nuclear power is being ratcheted down. That means more solar panels, wind farms, biofuels and digital grid installations.
Developing countries also are surging ahead with infrastructure spending. India, Brazil and other nations are investing in electrical transmission systems, roads and telecommunications. It is estimated that "investment requirements in electricity transmission and distribution are expected to double through to 2025-30, road construction to almost double and to increase by almost 50 percent in the water supply and treatment sector," according to the Organization for Economic Co-Operation and Development.
This long-term, global building boom translates into more business for steelmakers, electrical equipment/telecom manufacturers, road builders and public works systems and engineering firms.
In the United States, infrastructure spending has been going on as part of President Barack Obama's 2009 stimulus package - although that money has been mostly spent - and more recently included in a transportation bill. Although Congress has been reluctant to green-light another major stimulus plan, if Obama wins a second term, he is promising increased spending.
"I'll use the money we're no longer spending on war to pay down our debt and put more people back to work - rebuilding roads and bridges; schools and runways," Obama said in his nomination speech at the Democratic National Convention on September 6.
Unlike China, which is investing in new ports, high-speed rail and entire cities, the American plan would focus on fixing crumbling bridges, roads and public education facilities - and it may go forward with bipartisan support.
WHERE TO PUT YOUR MONEY
The most specialized play in infrastructure is in alternative energy, or so-called clean-tech stocks that focus on renewable power production. Included in this group are giant companies that make power transmission equipment for building or updating electrical grids including Siemens AG and ABB Ltd. The PowerShares Cleantech ETF holds companies like these, which gives you a stake in the worldwide shift to greener power sources.
If you are favoring specific countries, then a specialized exchange-traded fund (ETF) like the EGShares China Infrastructure fund is one consideration. The fund holds major companies such as China Telecom Corp Ltd, China Railway Group Ltd and China Oilfield Services Ltd, which are part of an index of Chinese infrastructure stocks. Like most emerging-market funds, this ETF carries currency and political risk.
Another single-country play is the EGShares Brazil Infrastructure ETF, which is most heavily weighted toward utilities and industrial companies. Also consider the India Infrastructure fund.
For more global coverage, consider the iShares S&P Emerging Markets Infrastructure Index fund, in which electrical utilities and industrials again dominate. But the managers give you an index-based sampling of Chinese, Korean and Brazilian companies.
An even broader selection of infrastructure companies is found in the iShares S&P Global Infrastructure Index ETF, which invests in the United States, Canada, Germany and other countries. It is a much more diverse mix that includes mainstream utilities like Pacific Gas & Electric Corp and international shipping firms such as Cosco Pacific Ltd.
Better yet, increase your exposure to a wide basket of international stocks through an index fund that represents global companies. That way, you will reap returns from every industry in a variety of countries. For that purpose, you would need a fund like the iShares MSCI ACWI Index fund, which tracks an all-country world index of more than 9,000 stocks.
Since all of these investments are long-term in nature - hold them over years, not months - it will take some time before you see significant returns. Many of the sector funds have had disappointing results in the past year because big money managers have shifted away from utilities, which have dominated many of the portfolios I have mentioned.
(The author is a Reuters columnist and the opinions expressed are his own. For more from John Wasik see link.reuters.com/syk97s)