Invesco PowerShares last month listed a new exchange-traded fund (ETF) on NYSE Arca that focuses on infrastructure construction in emerging market countries.
Demand for infrastructure tends to be inelastic because of long-term trends such as urbanization, population growth and globalization, says Richard Phillips, senior index analyst at S-Network Global Indexes. Many governments see the benefits of investing in infrastructure in good times and bad because of its effect on job creation and improved productivity.
The new PowerShares ETF is based on S-Network’s Emerging Infrastructure Builders Index, which tracks 66 stocks from emerging markets as well as stocks of some companies based in developed markets that do extensive infrastructure work in emerging and middle-income markets. The index focuses on builders such as construction, engineering, machinery and materials companies that realize their income upfront during the construction phase of major projects.
Morgan Stanley has predicted that $21.7 trillion will be spent on emerging markets infrastructure over the next decade.
A lack of sufficient modern infrastructure is already imposing significant strains on development in countries such as China and India, as well as in the Middle East and Latin America, according to Phillips.