China’s infrastructure stocks are back in vogue and defying the broader market’s decline this year on bets that government spending will support the sector.
The CSI 300 Infrastructure Index has advanced more than 5% this year to an almost three-year high versus a 6% drop in the mainland’s broader gauge, which entered a bear market last month.
While property developers are plagued by uncertainty, investors have responded positively to plans by authorities for “reasonable front loading” of infrastructure investment to bolster economic stability. State media has also talked up the theme, suggesting that new infrastructure provides vast opportunities, particularly in projects that help digital business.
Infrastructure shares have soared to the highest since April, 2019
Among heavyweights on the infrastructure index, ports and bridges builder China Communications Constructions Co. has surged 25% this year while Power Construction Corp. of China is up 18%. Shandong Hi-Speed Road & Bridge Co. is a standout among smaller companies, jumping 25% over the last seven sessions.
Expectations for building out 5G infrastructure is boosting stocks from Suzhou Shijia Science & Technology Inc, which is up 24% since Jan. 25, to China Mobile Ltd., which reached a record earlier this week.
“Investment figures and earnings for these companies are going to be really robust in the next couple of quarters,” said Li Weiqing, a fund manager at JH Investment Management Co. “They are important tools for economic stability.”
To be sure, most infrastructure stocks don’t carry big weightings in the CSI 300 Index, which means the rally in the sector is not enough to turn the broader benchmark around.
While some investors argue that the state spending play looks more like a valuation recovery rather than a full-fledged rally, optimism toward construction, telecoms and utilities companies has persisted despite fragile sentiment in the overall market.
After its rally this year, the infrastructure gauge is trading at around 9.8 times forward earnings, nearing its five-year average.
