In the second part of this series, we highlight six sectors that are on CIMB Research’s investment watchlist to ride on China’s OBOR initiative.
1. China & ASEAN Banks
The banking sector will be a key beneficiary of OBOR, be it in China or in the ASEAN region.
The OBOR strategy will be massive and will require heavy financing, both working capital or credit.
Chinese and ASEAN banks have the opportunity to extend and provide credit to finance infrastructure projects throughout the region.
Provision of cross-border and local financing for OBOR related investments will be key to the OBOR initiative’s success.
Investment Watchlist: DBS Group Holdings (SGX: D05), UOB Limited (SGX: U11), OCBC Limited (SGX: O39), Bank of China (HKG: 3988)
2. China Construction
Source: CIMB Research
Undoubtedly, the OBOR initiative will be heavy on infrastructure investment across the region.
China’s construction contracts in the region could be boosted by around 21%, according to CIMB Research’s estimation.
Most construction companies will benefit through the construction of infrastructure projects under OBOR initiative, including ports, roads, railway, highway, bridges.
Chinese construction companies currently have a 22% market share in Asia and 55% in Africa; with the OBOR initiative, Chinese construction companies could take up about 30% of market share in emerging Southeast Asia.
CIMB Research also foresees most of the international construction contracts awarded to China’s top eight construction groups. This could potentially boost their combined new contract value by 6.0%.
Investment Watchlist: China Communications Construction Company (HKG: 1800), China Railway Group (HKG: 390), China Railway Construction Corporation (HKG: 1186)
3. China Railway Equipment
Given that the OBOR’s Silk Road Economic Belt is a cross-border and cross-continent route, railways will be heavily leveraged on.
Railways will be used to not only to facilitate travel across the route but also to transport goods and services to different countries that are part of the Silk Road Economic Belt.
Railway equipment manufacturers will be apparent beneficiaries of new railways built under the OBOR initiative to link countries along the Silk Road Economic Belt.
CIMB Research notes that CRRC holds a monopoly position in locomotives in China and is also one of the key players on an international scale.
CRRC is expected to benefit from providing railway transportation equipment for new railways built under OBOR initiative.
Investment Watchlist: China Railway Construction Corporation (HKG: 1186)
4. ASEAN Offshore and Marine
To create the 21st century Maritime Silk Road, China needs to build up its energy infrastructure to sustain the Maritime Silk Road. This includes a number of gas pipelines and LNG terminal across Eurasia.
For example, China signed intergovernmental agreements with Uzbekistan, Tajikistan and Kyrgyzstan in September 2013 to build a 1,000-km line with a transmission capacity of 30 billion cubic meters per annum.
According to CIMB Research, Sembcorp Marine will be a key beneficiary of OBOR’s Maritime Silk Road.
Sembcorp Marine will be included in the construction of Gravifloat for China Poly-GCL for the export of gas from Ethiopia.
Investment Watchlist: Sembcorp Marine Limited (SGX: S51)
5. ASEAN Conglomerates
Conglomerates will benefit from township planning and development and basic utility installation such as water and power installations.
Transportation infrastructure will also need to be built to enhance the internal transport network of countries that are part of the OBOR strategy.
Investment Watchlist: Keppel Corporation Limited (SGX: BN4), Singapore Technologies Engineering Limited (SGX: S63), Sembcorp Industries Limited (SGX: U96)