Kay Bendall, Investment Director from Adam & Company, a Canaccord Genuity company, shares why infrastructure could be an investment theme worth thinking about this year.

This is not a recommendation to invest or disinvest in any of the companies, themes or sectors mentioned. They are included for illustrative purposes only.

Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.

The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity….(read more)

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Could Investing in Infrastructure Safeguard Against Inflation in 2022?

As the world continues to grapple with the aftermath of the COVID-19 pandemic, concerns about inflation are on the rise. Inflation refers to the sustained increase in the prices of goods and services over time, eroding the purchasing power of consumers and investors. In this uncertain economic climate, many are searching for avenues to safeguard their investments against potential inflationary pressures. One promising solution that is garnering attention is investing in infrastructure.

Infrastructure is a crucial component of any economy, encompassing various physical assets such as roads, bridges, ports, and telecommunications systems. It forms the backbone of a nation’s economic activity, facilitating the movement of goods and services and serving as a catalyst for growth. Historically, investments in infrastructure have been associated with long-term benefits, including job creation, increased productivity, and enhanced competitiveness.

Investing in infrastructure has inherent qualities that make it a potential hedge against inflationary pressures. Firstly, infrastructure projects tend to have higher capital costs, which can act as a natural inflation hedge. As prices rise, the costs of constructing and maintaining infrastructure projects will also increase. Consequently, the revenues generated from these projects may also rise in tandem, protecting investors against the erosion of purchasing power.

Furthermore, infrastructure assets often have long useful lives and generate stable cash flows over extended periods. These characteristics make infrastructure investments particularly attractive during inflationary periods. As prices rise, the value of these assets tends to increase, providing a buffer against inflation and serving as a store of value.

Investing in infrastructure can also stimulate economic activity, contributing to GDP growth. During times of inflation, governments may adopt expansionary fiscal policies to counteract the negative impact of rising prices. This can entail increasing public spending on infrastructure projects, thereby creating jobs and injecting liquidity into the economy. As a result, investing in infrastructure can not only safeguard against inflation but also offer potential returns and income opportunities.

In recent years, the need for substantial infrastructure investments has become even more apparent. Aging infrastructure, rapid urbanization, and the transition to a sustainable and resilient future demand significant upgrades and modernization. The proposed investments in infrastructure by various governments worldwide, such as the American Jobs Plan in the United States, highlight the growing recognition of the importance of infrastructure investment in driving economic recovery and resilience.

While investing in infrastructure holds potential benefits, there are also risks to consider. Construction delays, regulatory challenges, and political uncertainties can have a substantial impact on infrastructure projects. Investors must carefully evaluate the risks associated with each project and consider factors such as government support, project feasibility, and the economic climate.

In conclusion, investing in infrastructure may offer a robust strategy to safeguard against inflation in 2022 and beyond. With the potential to provide an inflation hedge, stable cash flows, and economic stimulus, infrastructure investments can serve as a protective layer for investors’ portfolios. However, it is crucial to conduct thorough due diligence and take into account the risks involved. By carefully selecting infrastructure assets and diversifying investments, investors can position themselves to benefit from the potential economic growth and stability that infrastructure can provide.