RARE Infrastructure Value Fund Market Commentary – January 2010
After a very strong 2009, January was the month investors intuitively knew would come at some stage, but hoped would not occur. Furthermore January’s poor performance and volatility has continued into February.
Despite the month starting strongly, developed markets (MSCI World, local) finished down 3.8% and emerging markets (MSCI EM, local) down 4.5%.
Markets were volatile and reacted to many global uncertainties, including Obama’s sinking political fortunes (which could harm the US’s ability to provide further fiscal stimulus, if needed) congressional concerns over the mounting US deficit, concerns over China’s growth and monetary policy and concern over Greece’s financial position and possible implication for other leveraged EU economies. These issues are not going away overnight, so volatility may persist for some months. Despite this, RARE continues to believe the main drivers for the economy are still in place: macro leading indicators are still moving in the right direction, Fed confirmed rates will remain low, Q4 reporting supports earnings recovery and valuations remain reasonable. We continue to see a reduction in US unemployment as critical to the recovery.
Infra Regulation. US regulator FERC granted National Grid an increase in allowed return on equity from 9.5% to 10.75% for their Long Island assets, the terms for passing through capex, pensions and healthcare costs were also improved.
Infra M&A. Auckland Airport purchased 24.55% in North Queensland Airports for $132m; EDF appeared less likely to proceed with a sale of it’s UK electricity distribution businesses, following a change to OFGEM’s merger policy and a regulatory review of these assets; and the Portuguese Finance Secretary announced that the government would not sell stakes in energy companies (Galp, EDP and REN), but will launch privatizations of airports (ANA), the national airline (TAP) and paper (Inapa).
Infra Funding. RWE issued US$250 million of three year bonds, with a coupon of just 2%. Gas Natural placed €2.2 billion of 5-10 year bonds with spreads over mid-swap of 80-110 basis points. This is significantly better pricing than a year ago.
Other Infra News. During the month Parking Co of America (largest domestic offsite airport parking business in the US) filed for bankruptcy. It is indirectly owned by a Macquarie vehicle.
