One of the biggest stories coming out of China earlier this year was the establishment of the Asian Infrastructure Investment Bank (AIIB), which I initially wrote about in the March column, "Asia's New Infrastructure Bank Looms."
That story and what it could mean for companies involved in infrastructure development was, within a few months, overshadowed by the collapse of the Chinese stock market and investors' concentration on immediate concerns vs longer-term potential.
Throughout this year, though, the AIIB has continued the initial phase of organizing members and is now on the verge of beginning to announce intended projects.
In the April column, "Asian Infrastructure Opportunities," I listed 19 securities that I thought would benefit from the bank's operations. As global deflationary forces have been building this year these securities have all declined in price by between 10% and 30%, on average.
Soon the AIIB will begin to announce the initial infrastructure projects it intends on financing. If the bank operates, as Chinese officials have stated, very similar to the fast-track systems for infrastructure development used by them for domestic projects, activity in the infrastructure space should increase rapidly.
The safest way of speculating on this at this point is through the two global infrastructure ETFs I originally wrote about in the May 2014 column, "When Infrastructure Goes Private," which followed the failure of President Obama's infrastructure investment plans for the U.S. after Russia invaded Crimea.
These ETFs are the iShares Global Infrastructure (IGF) and SPDR S&P Global Infrastructure ETF (GII), both of which are off by about 14% so far this year, putting them back to where they were about two years ago.
A more specific way to speculate on this is through the iShares China Large-Cap (FXI), on the assumption that a large percentage of the development work will be awarded to Chinese companies. FXI is also down about 14% this year and has not recovered from the rout in the Chinese equity market earlier this year.
An even more focused way of speculating on the impact of an increase in infrastructure development throughout Asia financed by the AIIB, with the majority of work performed by Chinese companies, is through the American Depository Receipts (ADRs) of the companies most closely associated with such development.
The list of eight Chinese ADRs below is in descending order based on market capitalization and a minimum value of $1 billion:
China Petroleum & Chemical (SNP)
CNOOC (CEO)
China Telecom Corp. (CHA)
China Unicom (Hong Kong) (CHU)
Huaneng Power International (HNP)
Aluminum Corporation of China (ACH)
Guangshen Railway Co. (GSH)
China Lodging Group (HTHT)
I offer these names simply as a watch list to monitor in conjunction with any news as to how and when the AIIB will begin operations.
