The Asian Infrastructure Figures That Make the US Debt Look Small

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Just how well is Victoria travelling at the moment?

Not only did the Western Bulldogs take down West Coast in a classic win in the AFL finals, the economy is roaring along as well.

According to the Australian Bureau of Statistics, Victoria’s growth numbers are the best they’ve been in eight years — and the best in the country as well. Naturally, Victorian Premier Daniel Andrews is taking credit.

It’s certainly true the Victorian government has ramped up its spending. So it’s no surprise to see Melbourne still recording good property growth.

As we’ve been saying over at Cycles, Trends and Forecasts for some time: Real estate prices will go higher where the infrastructure goes in.

There’s still plenty more building and infrastructure to come, too. Just consider Melbourne’s five new Metro train stations.

But hey, the rest of Australia isn’t doing too badly either…

$24 billion ‘bonanza’ on its way to Aussie shareholders

The Age reports that Australian companies will pay out $24 billion in dividends in the coming months.

John D Rockefeller — one of history’s all-time rich-listers — apparently said the only thing that gave him pleasure in life was his dividends coming in. I wouldn’t go that far, but I do appreciate the extra income.

Dividend payouts are historically high right now. The bean counters The Age cites suggest there’s plenty of free cash flow running through Aussie businesses. This cash can fund payouts and share buybacks for the foreseeable future.

Australian tax laws make high dividends attractive to do.

For the actual long-term improvement of Australia, it would be better to have tax laws that encouraged innovation, investment, and research and development.

That’s generally true as a shareholder as well.

Why dividends aren’t always the best option

Fund manager Roger Montgomery, in his book Value.able, shows how companies are better off reinvesting their retained earnings if they can generate a high return from them.

Over time, as a shareholder, you’ll see a bigger payback via the capital growth in the stock than if the company simply drops the dividends in your account. That drives economic growth higher too.

There is a caveat to this. The above is true if the company’s management invests the money wisely and doesn’t squander it by paying themselves large salaries, or making poor acquisitions and business decisions.

I’m sure plenty of people who’ve been around the market a long time — and invested in a few duds — will say they’ll take the dividend.

We’ll leave that debate for another day.

$24 billion is a big payout to shareholders and it will be good for consumption figures down the track.

Speaking of good figures…

Now we’re going to talk trillions

Did you see the recent special report on Asian infrastructure in The Australian Financial Review last week?

Never in my life have I seen such staggering figures mentioned.

Perhaps the only thing that comes close is the US government’s debt. Even so, it took 200 years or so to get to $19 trillion.

In comparison, what’s happening in Asia is happening at light speed. One analyst suggests emerging markets need between US$60 and US$70 trillion in infrastructure spending.

Between 2010 and 2025, the report says Asia will hit US$5.3 trillion. China’s total spend on this will have increased 250%. For the Philippines, it’s estimated to be 300%. Think roads, bridges and airports.

There were two other notable figures about China. Apparently, only 10% of the population owns a car and only 5% have a passport.

That is to say, there’s still huge scope for growth to come out of China and the rest of Asia. Naturally, Australia is incredibly well placed to benefit from this via our resources and service industries.

The Asian century has begun

Most likely, this Asian development will go own — with ups and downs — for the next century. The report in the AFR suggests Asia will represent two-thirds of the world’s middle class population by 2031.

Actually, investor Jim Rogers often draws a nice parallel between China and the US in the 19th century.

Jim says people forget — or simply don’t know ­— that the US had multiple booms and busts back then. It also had little in the way of civil rights or the rule of law. There were massacres in the streets, not to mention a civil war.

But the US was on the up and went on to be the dominant economy of the 20th century.

It’s a good insight, and it helps sometimes to take the longer view of China in that sense. Australia is well placed overall. We Aussies need to take a brighter view of things, in my opinion.

Of course, at the same time, we do need to stay sharp to any risk to the Aussie stock market from China now.

But when you see a billion people launching themselves into the middle class, you can see why we, over at Cycles, Trends and Forecasts, we’ll keep saying the biggest boom of all time is ahead of us. Go here to learn how to take advantage of this.

Best wishes,

Callum Newman,
Associate Editor, Cycles, Trends and Forecasts

Editor’s Note: This article was originally published in Money Morning.

Callum Newman

Callum Newman

Callum Newman is the editor of The Daily Reckoning and Associate Editor of Cycles, Trends and Forecasts. He also hosts The Daily Reckoning Podcast. Originally graduating with a degree in Communications, Callum decided financial markets were far more fascinating than anything Marshall McLuhan (the ‘medium is the message’) ever came up with. Today Callum spends his day reading and researching why currencies, commodities and stocks move like they do. So far he’s discovered it’s often in a way you least expect. To have Callum’s thoughts and insights on the current state of the currency, commodities and stock markets delivered straight to your inbox, take out a free subscription to The Daily Reckoning here.
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