Beneficiaries of AIIB
Stock experts said on March 26 that major Korean construction firms, including Hyundai Engineering & Construction, Daewoo Engineering & Construction, and Samsung Construction & Trading will benefit from the country joining the China-backed Asian Infrastructure Investment Bank (AIIB).
As the development of infrastructure will become active from the launch of the AIIB, new orders will increase as well. Accordingly, Korea is likely to have a certain level of shares as a founding member of the bank.
Kang Seung-min, an analyst at NH Investment & Securities, said, “As Korea decided to take part in the AIIB, the country has gained a foothold in infrastructure development projects in the Asian region. Therefore, local companies are expected to participate in the projects according to the shares of the AIIB.”
He said, “Since major construction companies mostly have experience in building infrastructure in the Asian region, they are likely to benefit.”
The Asian region holds 75 percent of the AIIB, and every country in Asia is expected to have a share rate according to its GDP. Also, the AIIB is planning to raise US$100 billion (110.68 trillion won) in funds for infrastructure construction in developing countries in Asia, and to loan it to construction projects in Asian countries.
According to the Asian Development Bank (ADB), the investment demand of infrastructure in the Asian region will be US$730 billion (807.96 trillion won) by 2020. Currently, the supply of investment funds from existing multilateral development banks such as the World Bank and the ADB only amounts to US$10 billion (11.07 trillion won) on an annual basis, which is far less than the demand.
Kang said, “The Asian region has the second-highest share in contracts for domestic construction firms after the Middle East. The annual figure between 2010 and 2014 stood at 32.3 percent. As the deferred infrastructure development due to financing problems becomes active, the scale of orders is expected to increase.”
However, it will take some time until the related issues directly affect construction stocks, since the AIIB will be officially launched at the end of this year or at the beginning of next year.