The impact of rising interest rates on infrastructure

By John Julian
Investment Director - Infrastructure Equity Sydney, Australia

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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Important notes

This blog post has been prepared to provide general information and does not constitute financial advice in accordance with the Financial Markets Conduct Act 2013. An individual investor should, before making any investment decisions, consider the information available in the relevant Product Disclosure Statement and seek professional advice. While every care has been taken in the preparation of this document, AMP Capital Investors (New Zealand) Limited and the AMP Group (together, 'AMP') make no guarantee that the information supplied is accurate, complete or timely and do not make any warranties or representations in respect of results gained from its use. The information is not intended to infer that current or past returns are indicative of future returns. The views expressed are those of the author and do not necessarily reflect those of AMP. These views are subject to change depending on market conditions and other factors.

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