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Is OBOR more than a buzzword?

China’s epic infrastructure project, ‘one belt one road’, is getting its own index, according to the Hong Kong Stock Exchange. But OBOR does not excite fund managers.
by Fund Selector Asia
Value Partners

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“There’s a perception that it will be a game changer for the Chinese infrastructure builders, but [the impact] is not that strong,” said Philip Li, senior fund manager at the Hong Kong-based Value Partners.

The overseas business of Chinese industrial names still account for a small percentage, roughly 10% of their overall businesses, he explained.

“There are a lot of infrastructure projects within China. It’s the government that decides what they want to [emphasize] and how quickly, depending on the economic growth in China. If the growth is weak, the projects can accelerate. But if it’s outside of China, it’s hard to control. The cycle is less clear.”

The long timeline of the OBOR initiative, and other risks such as geopolitical events like terrorist attacks, regulatory issues among the countries and foreign exchange fluctuation, all pose additional uncertainties for these overseas projects, he added.

Li noted Value Partners has some investments in some Chinese construction companies that build bridges and roads. “But it’s not about the one-belt-one-road theme. It’s that we believe their earnings can grow and the valuations are quite low. They only account for a small percentage for our portfolios.”

 

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