After a number of false starts, there is now genuine optimism that economic growth is at last picking up in the developed world. For investors this is good news. Higher growth suggests improved cash flows for most businesses and increasing investment returns on average. However, by the standards of the past, economic growth in the leading economies will be relatively modest. Inflation and bond rates are also expected to increase in the higher growth environment, but what does this mean for the infrastructure asset class?
There are a number of factors to take into account when considering the effects of rising interest rates on infrastructure – including impacts on funding costs, infrastructure asset revenues and, of course, valuations. This paper delves into all of these and argues that a moderate increase in interest rates won’t have a major impact on infrastructure asset cashflows, while strong demand for unlisted infrastructure assets and strength in growth-linked asset cashflows will support unlisted infrastructure valuations.
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