Political Risk A Constant Concern For Infrastructure
BMI View: Political risk has consistently been a major factor affecting the growth outlook for infrastructure companies and feeds into their stock prices. This year, we have already seen its effects on companies operating in India and Thailand, and we also expect political risk to materially impact growth expectations for infrastructure companies in Indonesia.
We have long highlighted the importance of political risk to infrastructure as it has frequently played a major role in shaping the infrastructure landscape for investors. Political risk not only affects the viability of new and existing infrastructure investments, but also the amount of growth opportunities in a country's infrastructure market. This is particularly so among Asian economies. Political systems in the region are relatively immature, and a majority of the infrastructure opportunities on offer across the region are generated from fixed asset expenditure by the domestic public sector.
Within BMI's Infrastructure team, we have primarily discussed the effects of political risk to infrastructure in two ways:
Primarily Public-Funded Selected Asian Countries - Fixed Capital Formation Spending, 2014f, % of GDP