Urquhart favours infrastructure and agriculture trends in emerging Asia

Infrastructure and agriculture in Asia are two of the major investment themes favoured by David Urquhart, manager of the recently launched Fidelity Asian Aggressive Fund.

David Urquhart comments: "Emerging market infrastructure spending is set to more than double in the next ten years and reach a total of almost $3,500 billion. And the majority of this spend will be in Asia. But it is important to look beyond the obvious for the best ideas.

"The infrastructure chain starts with mining - coal, iron ore and other materials. Shipping and logistics companies are then required to transport the materials - along roads, rail and via airports that also need to be built. Banks are called on to fund construction projects and the firms that do the construction work need equipment. There are a variety of opportunities to be found to exploit the infrastructure theme.

"Likewise, agriculture is more than just food. Seed, fertilisers, pesticides and equipment are all required by farmers. They also need land, logistics companies to transport their produce to food and beverage companies, and then on to supermarkets. Asia already consumes almost two-thirds (59%) of the world's soya beans and one-third of the world's milk and meat.

"As the region's population gains in wealth and eating habits change, these numbers will only increase. But it's not just the companies in the countries where demand is highest that are benefiting from this trend. Australia exports 19% of the world's beef and 10% of wheat. As part of the wider Asia region, it should benefit too."

The geographical remit of the fund benchmark MSCI All Country Asia Pacific ex-Japan Index provides a broader investment universe that includes Australia, New Zealand, India and Pakistan. Taking advantage of this, stocks Mr Urquhart is invested in which play to the infrastructure and agricultural themes include Leighton, an Australian engineering and construction company that serves clients in Australia, Asia and the Middle East and Incitec Pivot, another Australian based company, which specialises in the manufacture, distribution and sales of fertilisers.

"Leighton is enjoying a strong outlook for all parts of its business at the moment," comments Mr Urquhart. "Its contract mining work is strong and it is looking to enter new markets in Mongolia and Russia. It became a top 5 player in the Indian market within 2 years of entry and a shortage of skills in the region are driving margins higher.

"Incitec Pivot has good earnings momentum in its existing business, driven by the continued rise in fertiliser prices. With a strong management team and raw material costs looked in for the next 17 years, the outlook is extremely positive."