04 June 2008
Macquarie Research Equities, the institutional research arm of the Macquarie Group, today announced the launch of the Macquarie Emerging Markets Infrastructure and Development Index ("MEMIDI"), which tracks the rise in infrastructure spending due to demand from urbanites in emerging market economies, or "Generation A’’, by reference to the performance of the 50 largest emerging markets infrastructure-related companies.
``Generation A’’ resides in the world’s emerging economies, aspire to raise their standard of living, want to succeed, are highly driven, and have made the decision to move from rural areas to urban centres. Generation A is fuelling the urbanization and industrialization of emerging economies, demanding more roads, rail, power, telecommunications and all forms of infrastructure. Macquarie’s research forecasts this trend to be a key driver of global growth, while MEMIDI will reflect the industrialisation of emerging countries.
"The massive size of Generation A ensures it will be the most influential generation in recent world history,’’ said Stewart Ferns, equity strategist for Macquarie Research Equities. "The Mega-trend in the global economy right now is the ;rise of Generation A. This year, for the first time in history, the world's urban population will equal the rural population. Our index includes companies directly benefiting from this trend, which is what investors are looking for at the moment.’’
Investors are drawn to emerging markets in the search for higher returns from faster rates of economic growth. Assets in emerging market equity and bond mutual funds worldwide exceed $US600 billion now. Over the past half-decade, assets have grown by roughly eight times.
The rate of growth in developing economies is expected to reach as high as 7% in 2008, which is more than double the pace of developed economies. As economies develop, the aspiring middle class of urbanites grows and so too does their demand for power, transport and other utilities.
"Urbanisation in emerging markets is happening like it has in the past only this time it is happening in the world’s most populous nations of China, India and other leading emerging markets,’’ said Ferns. "The sheer size and scale of demand for power and infrastructure going forward is beyond anything we have ever seen."
In China, the rapid expansion of Generation A will result in more than 200 cities having more than one million inhabitants by 2025, compared with 35 in Europe today. The average urbanization rate of the 25 countries in MEMIDI was 62% in 2005, which is forecast to increase to 80% in 2050.
The mega-trend of urbanisation will impact infrastructure spending in emerging countries massively. It is little wonder then that China announced in its 11th five-year plan that it will spend a further Rmb4.5tr ($US120 billion) per year to improve its infrastructure.
The MEMIDI, calculated by the FTSE Group, is a transparent benchmark which tracks the performance of the 50 largest emerging markets infrastructure-related companies. The infrastructure and development stocks that make up the index are ranked by market capitalization, with a 10% cap on individual constituents effective on quarterly dates. The index will be available in several currencies - U.S. dollars, Sterling, Australian dollars and Japanese yen. There are 15 countries in the index at inception, whilst the index universe consists of 26 countries.
"Historically, the MEMIDI has an annualized return of 36.5 percent over the last three years ending April 2008 in U.S. dollar terms", said Mr Ferns.
In July 2005, Macquarie launched the Macquarie Global Infrastructure Index Series ("MGII") comprising more than 70 sub-indices, including the MGII 100 which tracks the performance of the world’s largest 100 pure infrastructure-related companies. MGII is used extensively by investors world-wide for investment analysis, performance measurement, asset allocation, portfolio hedging and for creating a wide range of index tracking funds.
"If you look back just a few years, there were no infrastructure indices to allow investors to truly benchmark infrastructure until Macquarie developed the Macquarie Global Infrastructure Index Series. Expanding this index family to include emerging markets is a natural evolution for us," said Mr Ferns.
"We believe MEMIDI will become an industry benchmark for monitoring the performance of emerging market infrastructure companies", said Nick Thompson, Head of Non-Flow Structured Product Sales for Macquarie Equities (Asia) Limited. ‘’We expect to see a tremendous amount of product linked to the new index given the increasing interests in infrastructure as an asset class,’’ Mr Thompson added.
For more information about the index, please visit: http://www.macquarie.com/indices
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About Generation A
Generation A consists of aspiring urbanites moving to, and living in, rapidly expanding city centres in fast growing emerging markets. Generation A are the people driving the infrastructure expansion - it is these people that are demanding more electricity, roads, railways and telecommunications. Gen 'A' want to succeed, are highly driven individuals, who have made the decision to move from the rural areas to urban centres and move up the chain. Generation 'A', (unlike Generation Y) is highly productive, hard working - the evolving Middle Class of the emerging markets - the emerging markets baby boomers.
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