Überliste Dich Selbst: Die Odysseus-Strategie

Behavioral Finance in Aktion

Infrastructure – The Backbone of the Global Economy

Analysis & Trends

PortfolioPraxis: Akademie

2

3

Analysis & Trends

Content4 Infrastructure –

The Backbone of the Global Economy

5 Globalisation: Global trade as growth driver

6 The future belongs to the city

6 Energy – the key to economic development

8 Utilities: high need for investment to safeguard living standards

10 Transport – growth countries in the fast lane

11 Telecommunications – 3.5 billion potential new users

12 Social infrastructure – an important factor

12 Enormous need for infrastructure investment worldwide

ImprintAllianz Global Investors GmbHBockenheimer Landstr. 42 – 4460323 Frankfurt am Main

Global Capital Markets & Thematic ResearchHans-Jörg Naumer (hjn)Ann-Katrin Petersen (akp) Stefan Scheurer (st)

Data origin – if not otherwise noted: Thomson Reuters Datastream

Allianz Global Investors www.twitter.com/AllianzGI_VIEW

Analysis & Trends

4

Infrastructure – The Back-bone of the Global EconomyIn many places, global demographic change is creating the need for investment in infrastructure. This need is particularly great in the emerging countries, but investment is required in the industrial countries, too, in order to ensure quality of life and economic growth.

• November 2006: a breakdown in the German power grid leaves about 10 million people in Europe in the dark.

• September 2011: a massive power outage leaves five million people without electricity, paralyzing large sections of the south-western US and Mexico.

• July 2012: India is hit by one of the largest power outages in more than 10 years. More than 600 million people are affected.

These examples show that electricity black-outs don’t just happen in developing coun-tries, they can also occur in the industrial countries of Europe and in the US. Why? The answer is globalisation. The global population is growing. People are increasingly mobile, demand for goods and services is increasing

and energy consumption is on the rise. It is clear that the infrastructure in place cannot meet the challenge of these developments. Governments need to invest millions in new streets, bridges, clinics, airports and social services in order to meet these requirements.

What is infrastructure?There is no standard definition of the term infrastructure. In general, infra-structure is considered to mean the basic facilities needed to ensure the func tioning of a country’s economy. This includes the following areas (see Chart 1).

Economic infrastructure Social infrastructure

Transport Energy & utilities Telecommunications

• Schools• Hospitals• Prisons• Courthouses• Sports stadiums• Exhibition halls

• (Toll-)roads• Bridges & tunnels• Airports & seaports• Railways• Underground

railways• Logistics centres

• Oil and gas pipelines

• Gas/electricity supply

• Gas/electricity networks

• Water supply• Water distribution• Waste-water

disposal• Renewable energy

• Cable networks• Radio masts• Satellite systems

Chart 1: What is infrastructure?

Source: Ernst & Young, CFA Institute, Allianz Global Investors Capital Markets & Thematic Research

5

Globalisation: Global trade as growth driver

According to United Nations statistics, the world population was around 2.5 billion in 1950; it has now risen to more than 7 billion and it is expected to exceed 9 billion by 2050 (see Chart 2). Global population growth con-tinues inexorably, with five babies being born every two seconds. Growth in the industrial countries is much less dynamic than in the emerging economies, and particularly in the developing countries. The UN estimates that the share of the world population of the industrial countries will decline from almost 19 % in 2005 to 14 % in 2050. The share of

the emerging countries will remain virtually unchanged at about 67 %, while the develop-ing countries’ share will rise from just under 12 % to 19 %.

The increasing world population and grow-ing globalisation are driving global trade. A steadily growing and increasingly prosperous society is demanding more goods and ser-vices. This can be seen in the fact that global trade has risen twice as fast as world eco-nomic growth since 1987. According to the World Bank, low-income countries will grow twice as fast as high-income countries in the coming decades (see Chart 3).

Chart 2: High contribution of emerging markets to growthDevelopment of world population, 1950 to 2050 (in millions)

Source: United Nations (UN), World Population Prospects: The 2010 Revision, October 2011, Allianz Global Investors Capital Markets & Thematic Research

10,000

World Population(in millions)

9,0008,0007,000

19501955

19601965

19701975

19801985

19901995

20002005

20102015

20202025

20302035

20402045

2050

6,0005,0004,0003,0002,0001,000

0

Developed Countries Emerging Markets Developing Regions

Forecast

Chart 3: Globalisation – “World trade as a driver of growth” World trade has grown more than twice as the economy since 1975

1000

800

600

400

1980 1985 1990 1995 2000 2005 2010 2015

Global Trade

200

0

Global Real GDP

indexed

Source: Datastream, Allianz Global Investors Capital Markets & Thematic Research, October 2015.

World trade has grown more than twice as the economy since 1975

Analysis & Trends

6

The future belongs to the city

In 1980, 39 % of the world’s population lived in cities; now, more than half live in major cities, and this figure is expected to rise to 67 % by 2050, according to a United Nations forecast. The trend is clear: the future belongs to the city. In Europe (74 %), North America (83 %) and Latin America (80 %) the share of the population living in cities will already be high in 2015, but it will rise even more by 2050. However, Asia and Africa are undergoing amazingly rapid development, and more than half the population is expected to live in cities by 2050 (see Chart 4).

The result of this urbanisation is the rise of megacities, a trend that now seems to be irre-versible. While just five cities had a population of at least 10 million in 1975 (New York, which is the oldest megacity, Mexico City, Sao Paulo, Tokyo and Shanghai), the UN expects there to be 22 by 2015, 17 of which will be in develop-ing countries. In 2012, Asia is already home to seven of the world’s ten largest megacities.

The industrial and service metropolises will see a particular need for replacement invest-ment in infrastructure facilities in the coming years. The emerging and developing coun-tries, in contrast, are faced with severe con-gestion, environmental and socioeconomic problems, as well as an extreme infrastructure

deficit. In order to counteract these develop-ments, a wide range of investments is needed in utilities, construction, telecommunications, transport and social infrastructure. The example of China makes this especially clear. One billion people will be living in Chinese cities in 2030, according to McKinsey. By that time, there will be 221 Chinese cities with a population of more than a million people (in Europe the figure now is just 35). In the next 20 years, 40 billion square metres of living and working space will be created in 5 million buildings, 50,000 of which will be skyscrapers (this corresponds to 10 times the volume in New York City).1

Energy – the key to economic development

In addition, the strong growth of the emerg-ing countries has greatly increased the need for investment in the area of energy infra-structure in recent years. And the need will probably continue to grow. The Organisation for Economic Cooperation and Development (OECD) estimates that, in the period from 2003 to 2030, China will have to invest about USD 2 trillion in power plants for electricity generation and distribution, because energy consumption in China is growing at a rate of 4.5 % annually, among the fastest increases in the emerging countries (India: 4.9 %) (see Chart 5).

100 %

90 %

80 %

70 %

Europe North America Latin America Asia Africa World

60 %

50 %

40 %

30 %

20 %

10 %

0 %

1980 2050 (f)2015 (f)

67 %74 %

82 %

74 %

64 %

80 %87 %

27 % 28 %

39 %

54 %

67 %

37 %

58 %

48 %

64 %

83 %89 %

f = forecast

Chart 4: More than half of the world’s population live in cities Proportion of city-dwellers in % of the world population

Source: United Nations (UN), World Urbanization Prospects: The 2011 Revision, March 2012, Allianz Global Investors Capital Markets & Thematic Research

1 Source: McKinsey Global Institute: “Preparing for China’s Urban Billion”, 2008.

7

But the industrial countries also have a lot of work to do in terms of infrastructure: According to the OECD, the US and Canada are expected to invest nearly as much in their electricity infrastructure as China in the years

to come (see Chart 6). Past failures are the main reason that this investment is neces-sary. Existing plants have not been adequately maintained and investment has not been made in replacement plants.

14,000

in THW

12,000

10,000

8,000

6,000

OECD Emerging Markets China India Latin America Middle East Africa

4,000

2,000

0

1971 2003 2010 (f) 2030 (f)f = forecast

Chart 5: Electricity consumption is rising steadily – particularly in developing countries India’s annual growth rate for power consumption is 4.9 % between 2003–2030

Source: OECD (2006), Allianz Global Investors Capital Markets & Thematic Research

Chart 6: Cumulated expected investment requirements in electricity, worldwide 2003–2030* Infrastructure is not only something that affects the new emerging world

1,500

in bn USD

2,000 2,5001,000

Generation

5000

China

North America

OECD Europe

East Asia

South Asia

OECD Pacific

Latin America

Transition Economies

Africa

Middle East

Transmission Distribution

* based on a constant local price series by its 2000 USD value.Source: OECD (2006), Allianz Global Investors Capital Markets & Thematic Research

Analysis & Trends

8

Utilities: high need for invest-ment to safeguard living standards

Take water, for example. Water covers about 71 % of the earth’s surface. A bottleneck for a commodity that is so important to people is not really expected to come about in the future. But in addition to the fact that only 0.3 % of the world’s water supply is actually available for human use, it is important to note:

• that only about 83 % of the world’s popula-tion has access to clean water and 58 % to sanitation. The need for investment seems to be greatest in the developing countries (see Chart 7).

• that in 2025 the agricultural sector (70–75 % share of global water consumption), indus-try (20 %) and households (5–10 %) will together use up to 40 % more water than is the case today to maintain the standard of living (see Chart 8).

• that global water availability has fallen since 1950 and will continue to decline until 2030. Example: By 2030, per capita water availability in the industrial countries will be 40 % lower than in 1959. A high level of investment is required to find new sources (see Chart 9).2

Infrastructure investments are necessary to improve the supply infrastructure, in par-ticular. In London, for example, up to 50 % of the water produced leaks away because the water pipes date, in part, from the 19th century. The OECD forecasts that an annual volume of investment in infrastructure of over USD 600 billion for the next 20 years is needed to ensure the water supply. But sani-tation is just as important as the water sup-ply. The greatest demand is in the emerging countries. China is expected to spend more than USD 200 billion by 2025, India about USD 100 billion and, for the US, the figure will probably be USD 150 billion..3

in %

100

8083

58

98 98 9383 79

49

60

water supply

World Developed countries Eurasia Developing regions

40

20

0

sanity equipment

Chart 7: Almost full access in industrialised nations Proportion of the population with access to a water supply and sanitary facilities (in %)

Source: OECD (2006), Allianz Global Investors Capital Markets & Thematic Research

2 Source: OECD, “Infra-structure to 2030”, 2006.

3 Source: OECD, “Infra-structure to 2030”, 2006.

9

in km3/year

6,000

5,000

4,000

3,000

2,000

1,000

0

1900 1950 1995 2004 2025

Losses (reservoirs) Industry Water for residential areas Agriculture

Forecast

Chart 8: Water consumption is rising rapidly – along with costs and investmentGlobal water consumption of households (km3/year)

Source: OECD (2006), Allianz Global Investors Capital Markets & Thematic Research

100

in %

80

60

40

1950 1960 1970 1980 1990 2000 2010 (f) 2020 (f) 2030 (f)

20

0

Developed countries Developing countries - humid Developing countries - aridf = forecast

Chart 9: Availability of water is declining furtherExpected global availability of water*

* availability per head compared with 1950, in %Source: OECD (2006), Allianz Global Investors Capital Markets & Thematic Research

Analysis & Trends

10

Transport – growth countries in the fast lane

Beijing’s airport increased its passenger num-bers from 27.1 million to 77.4 million from 2002 to 2011, an annual rise of slightly over 25 %. This is not an isolated case, although growth rates of the world’s 15 biggest airports are much lower at 10 % to 15 % according to the Airport Council International. In China alone, the International Air Transport Asso-ciation (IATA) expects that China will see an increase of almost 900 million passengers from 2010 to 2015. Given this growth, China plans to build 56 new airports by the end of 2016, which will put the total number at around 240. The trend is clear: people are more mobile, and this fuels globalisation. The picture is the same for road transport.

In 2000 there were 40 vehicles for every 100 people worldwide. The OECD expects the number of vehicles to nearly double by 2030. And in Brazil, China, India, Indonesia and Russia the number of vehicles is expected to triple. Nevertheless, only one in seven people in these countries will own a vehicle (see Chart 10).

The emerging countries are also in the fast lane in terms of expected expenditures. The OECD forecasts that these countries will increase annual investment in road construc-tion alone from its current level of around USD 10 billion to nearly USD 70 billion in 2030. Globally, around USD 200 billion will be required annually for the maintenance of existing roads and the construction of new roads (see Chart 11). For example, India is planning to triple the length of its express-ways (an increase of 1,600 km) in the coming years.4 By way of comparison, China already has 74,000 km of expressways.5

Chart 10: By 2030 Only One in Seven Will Have a Vehicle in Developing CountriesVehicles per 100 persons, 2000–2030

Source: OECD (2006), Allianz Global Investors Capital Markets & Thematic Research

4 Source: Ministry of Road Transport and Highways (India).5 Source: Transport Corp. of India, Indian Institute of Management, Calcutta.

80

70

60

50

2000

* China, India, Russia, Brasil, Indonesia

2010 (f) 2020 (f) 2030 (f)

40

30

20

10

0

25

20

15

10

5

0

OECD World Big 5 (rhs)* Non-OECD (rhs)

f = forecast

11

Telecommunications – 3.5 billion potential new users

Given its penetration thus far, it is reasonable to conclude that the impact of the Internet is only just beginning to be felt, even if daily life and the working world have already radically changed in many ways. This is because it is primarily people from countries with more developed economies who have had access to cyberspace. In the US nearly 80 % of the

350

300

250

200

2000

* China, India, Russia, Brasil, Indonesia

2010 (f) 2020 (f) 2030 (f)

150

100

50

0

70

60

50

40

30

20

0

10

OECD World Big 5 (rhs)* Non-OECD (rhs)f = forecast

USD bn USD bn

Chart 11: Not only in road construction are emerging markets in the fast laneRoad construction, 2000–2030, in billion US Dollar

Source: OECD (2006), Allianz Global Investors Capital Markets & Thematic Research

90

80

70

60

50

Penetration (% of population) % of World Growth p.a.

40

30

20

10

0

Africa Asia Europe Middle East North America Latin America/Carib.

in %

Chart 12: Internet – usage by regionThe impact of the Internet is only now being felt

Source: Internet World Stats, 2011, Allianz Global Investors Capital Markets & Thematic Research

population is already on line, while the figure is a bit over 60 % in Europe, and somewhat more than 25 % in Asia. The Asian countries not only represent more than half the global population, they make up nearly 50 % of all Internet users. The annual growth rates since 2000 are impressive: the number of Internet users in Asia increases by 20 % every year, and in Africa, which has thus far been extremely underrepresented, annual growth stands at more than 30 % (see Chart 12).

Analysis & Trends

12

Social infrastructure – an important factor

Any review of the topic of infrastructure should not ignore so-called social infrastruc-ture. Educational facilities and hospitals are needed for the vital role they play in the eco-nomic system; the lines between economic and social infrastructure overlap: for example, communications networks support learning processes.

Enormous need for infrastructure investment worldwide

The OECD estimates average worldwide investment volume for new infrastructure, or for maintenance of existing infrastructure, to be around USD 1.8 trillion annually (!) from 2010 to 2030 (see Chart 13):

• The water sector is expected to see the highest expenditure (USD 900 billion per year).

• Around USD 270 billion will be spent on road construction per year.

• About USD 210 billion annually will go to the power supply.

Whether it’s the energy supply, the improve-ment of utilities and transport infrastructure or telecommunications – a country’s infra-structure requires constant maintenance and renewal. Globalisation, coupled with world-wide demographic change, will make enor-mous infrastructure investments necessary in the coming decades in both the industrial countries and the growth countries.

Stefan Scheurer

1.200

in Mrd. USD

1.000

800

600

400

Straße Schiene Telekommunikation Elektrizität Wasser

200

0

2000 – 10 2010 – 20 2020 – 30

Chart 13: Water needs the most Investment Expected global expenditure on infrastructure per year in billion US Dollar, 2000–30

Source: OECD (2006), Allianz Global Investors Capital Markets & Thematic Research

13

Notes

Further Publications of Global Capital Markets & Thematic Research

Active Management → “It‘s the economy, stupid!”

→ The Changing Nature of Equity Markets and the Need for More Active Management

→ Harvesting risk premium in equity investing

→ Active Management

Alternatives → Volatility as an Asset Class

Financial Repression → Shrinking mountains of debt

→ QE Monitor

→ Between a flood of liquidity and a drought on the government bond markets

→ Liquidity – The Underestimated Risk

→ Macroprudential policy – necessary, but not a panacea

Strategy and Investment → Equities – the “new safe option“ for portfolios?

→ Dividends instead of low interest rates

→ “QE” – A starting signal for euro area investments?

Capital Accumulation – Riskmanagement – Multi Asset → Smart risk with multi-asset solutions

→ Sustainably accumulating wealth and capital income

→ Strategic Asset Allocation in Times of Financial Repression

Behavioral Finance → Behavioral Risk – Outsmart yourself!

→ Reining in Lack of Investor Discipline: The Ulysses Strategy

→ Behavioral Finance – Two Minds at work

→ Behavioral Finance and the Post-Retirement Crisis

All our publications, analysis and studies can be found on the following webpage: http://www.allianzglobalinvestors.com

15

Investments involve risk. The value of an investment and the income from it may fall as well as rise and investors may not get back the principal invested. Equi-ties can be volatile and, unlike bonds, do not offer a fixed rate of return. Bond prices will normally decline as interest rates rise. High-yield or “junk” bonds have lower credit ratings and involve a greater risk to principal. Dividend-paying stocks are not guaranteed to continue to pay dividends. Investments in emerging markets may be more volatile than investments in more developed markets. Past performance is not indicative of future performance. No offer or solicitation to buy or sell securities, nor investment advice / strategy or recommendation is made herein. In making investment decisions, investors should not rely solely on this material but should seek independent professional advice.

Statements concerning financial market trends are based on current market conditions, which will fluctuate. Forecasts are inherently limited and should not be relied upon as an indicator of future results. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer and / or its affiliated companies at the time of publication. The data used is derived from various sources, and assumed to be correct and reliable, but it has not been independently verified; its accuracy or completeness is not guaranteed and no liability is assumed for any direct or consequential losses arising from its use, unless caused by gross negligence or willful misconduct. The conditions of any underlying offer or contract that may have been, or will be, made or concluded, shall prevail. The duplication, publication, extraction or transmission of the contents, irrespective of the form, is not permitted.

This is a marketing communication. This material has not been reviewed by any regulatory authorities, and is published for information only, and where used in mainland China, only as supporting materials to the offshore investment products offered by commercial banks under the Qualified Domestic Institutional Investors scheme pursuant to applicable rules and regulations.

This document is being distributed by the following Allianz Global Investors companies: RCM Capital Management LLC, an investment adviser registered with the US Securities and Exchange Commission; Allianz Global Investors Distributors LLC, a broker-dealer registered with the US Securities and Exchange Commission; Allianz Global Investors Europe GmbH, a licensed provider of financial services (Finanzdienstleistungsinstitut) in Germany, subject to the supervision of the German Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) and an investment adviser registered with the US Securities and Exchange Commission; RCM (UK) Ltd., which is authorized and regulated by the Financial Services Authority in the UK; Allianz Global Investors Hong Kong Ltd. and RCM Asia Pacific Ltd., licensed by the Hong Kong Securities and Futures Commission; Allianz Global Investors Singapore Ltd., regulated by the Monetary Authority of Singapore [Company Registration No. 199907169Z]; RCM Capital Management Pty Limited, licensed by the Australian Securities and Investments Commis-sion; and RCM Japan Co., Ltd., registered in Japan as a Financial Instruments Dealer.

Sept

embe

r 201

2, S

light

Upd

ate

Octo

ber 2

015

www.allianzglobalinvestors.com

Allianz Global Investors GmbHBockenheimer Landstr. 42 – 44 60323 Frankfurt am Main