Investing in Asia, which has one of the largest infrastructure gaps in the world, is not necessarily riskier than investing in mature markets, a keynote panel told an audience of over 200 at Infrastructure Investor’s Hong Kong Summit today.
“Political risks are everywhere,” said Daniel Fedson, director of the G20’s Global Infrastructure Hub. He noted that Canada and Australia have showed how political risks in developed markets can impact infrastructure investments.
“The biggest risk in Asia is the perceived risks, rather than the actual risks,” said Michael Barrow, director general of the private sector operations department at the Asian Development Bank. Barrow used Pakistan as an example: “One of our biggest lending and investment countries, where we find the best returns with less problems with regulators, is actually Pakistan. However, commercial banks see the country as high-risk on the back of perceived risks.”
“You need to analyse the infrastructure needs, regulators’ sophistication and policy changes in each and every country,” stressed Sandiren Curthan, director of infrastructure investments at PSP Investments, noting the importance of having local knowledge and doing thorough due diligence.
The Canadian pension plans to invest $3 billion in Asian infrastructure over the next five years, as “it makes sense to invest in Asia”, argued Curthan. The pension has committed $1.4 billion to the region so far, with its latest deal being the acquisition of Equis Energy, a $5 billion Asian renewables portfolio, together with Global Infrastructure Partners.
“If a country, no matter what political risks it presents, needs an asset to be there, supported by domestic fundamental demand, they will find a way,” said Barrow.
Encouragingly, investors seem to be responding to that. Fedson concluded by pointing out that the GI Hub’s latest survey showed that 37.5 percent of 186 respondents – representing $7 trillion in assets under management – are now active in emerging markets, with 82 percent looking to invest more in them.