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In a dynamic financial landscape marked by twists and turns, the Global Listed Infrastructure (GLI) sector, as analyzed by the Morgan Stanley Investment Management (MSIM) Global Listed Infrastructure Team, stands resilient against short-term headwinds while projecting a robust long-term outlook.
According to an article by Morgan Stanley, despite facing a challenging 2023, characterized by underperformance against the broader global equity markets, GLI exhibits solid fundamentals across various infrastructure sectors. The apparent underperformance in 2023 is attributed to factors beyond fundamental concerns, with the favourable top and bottom-line trends prevailing for most asset and industry types in infrastructure. The four major industry categories of core listed infrastructure securities -- Utilities, Energy Infrastructure, Communications, and Transportation -- manifest positive top and bottom-line trends. Only the Communications sector, particularly within the US wireless tower subsector, faces challenges with stagnant 2023 cash flow growth. In contrast, European tower operators and global data centre companies enjoy robust fundamental trends. Contrary to current valuations being at odds with the fundamental backdrop and relative to broader equity performance, GLI companies appear well-positioned to retain margins. Interest and other operating costs, often considered "pass-through," contribute to this resilience. Current valuations, though impacted by short-term headwinds related to interest rates, remain attractive relative to broader equity markets. Despite short-term headwinds, the defensive sectors of Utilities and Communications trade at appealing valuations, offering an alternative perspective. Regulatory constructs enable infrastructure companies to navigate higher interest costs effectively, emphasizing their ability to maintain margins. GLI's historical performance in recessionary environments reinforces its resilience. The sector has a track record of outperforming global equities during challenging economic periods. Should a modest economic downturn occur, certain sectors within GLI, such as freight rail and energy infrastructure, stand poised for a positive recovery. As the global economy potentially re-accelerates in 2024, GLI is positioned to benefit. Growth areas in infrastructure, such as the energy transition and renewables, have not been fully rewarded in 2023. A more stable economic and financing environment is expected to underscore opportunities in these areas, leading to a potential re-rating of companies exposed to such themes. In the longer term, GLI demonstrates its strength with low volatility of earnings, stable cash flows, a higher relative income component compared to global equities, and attractive returns. Since the inception of the Dow Jones Brookfield Global Infrastructure Index, GLI has provided superior returns to global equities at lower volatility. In summary, the MSIM Global Listed Infrastructure Team emphasizes the resilience of GLI against short-term challenges and anticipates a prosperous future. The sector's ability to weather economic storms and its compelling long-term prospects position it as a resilient and lucrative investment option in the ever-evolving global financial landscape. (ANI)
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