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A New Silk Road Paved With Opportunities

5,000 years ago, there was no worse crime in China than revealing the secret of silk.

It was a prized fabric in the West and Middle East. The only way to get your hands on it was to travel the Silk Road.

The century’s old road stretched from the Korean peninsula all the way to the Mediterranean Sea.

To walk the road is the equivalent of walking from Melbourne to Cairns and back, twice!

For centuries, China had a monopoly on silk. And thanks to the Silk Road, they had the means to trade it for gold and silver.

Today, China has plenty of other ‘silks’ (products we want here in the West). And for the sake of trade and economic growth, they’re planning to build the biggest trading route in history.

It will connect China to the world. A colossal project, spaning decades and costing trillions.

The Aussie government has said they want in. But did you know that you too can profit from the world’s biggest infrastructure project?

Let me explain how…

What is China’s ‘One Belt One Road’ initiative?

They’re calling it the ‘One Belt, One Road’ initiative. It will cover 65 countries, touching more than 4.4 billion people.

It’s China’s answer to opening up trade with the rest of the world.

The nation will spend a trillion dollars building ports, rail networks, bridges and roads.

China's 'One Belt, One Road' initiative 20-02-2018

Source: Sydney Morning Herald
[Click to enlarge]

Clearly, it’s a mammoth task.

One that they’ve been talking about for years now.

What seems to be holding them up are reservations held by other countries.

For example, the US is very tentative about the project. Trade is incredibly important when talking about national income and economic supremacy. The last thing the US wants is for China to become even more dominant in global trade.

Europe also have their own concerns. China needs to follow rules if they plan to build a route to 500 million European consumers, they argue.

For example, what would happen if low-cost Chinese steelmakers flooded the European market with steel?

It could put European steelmakers out of a job, increasing unemployment and potentially damaging their economy.

Of course, such thinking promotes economic protectionism. Over time, protectionist policies actually weaken industries.

Nevertheless, European leaders need to win votes. ‘Protecting jobs’ is an easy way to do that.

But while there are concerns, no one is denying the massive opportunities at hand. Nations like Australia and the US aren’t sitting idly by.

Along with India and Japan, Australia and the US are planning to profit from China’s mammoth new Silk Road.

Piggyback opportunities

China alone will not build roads and ports spanning from Beijing to Scandinavia. They’ll enlist the help of local builders, engineers and project managers.

The Economist wrote in mid-2016, early in the planning process:

Official figures say there are 900 deals under way, worth $890 billion, such as a gas pipeline from the Bay of Bengal through Myanmar to south-west China and a rail link between Beijing and Duisburg, a transport hub in Germany. China says it will invest a cumulative $4 trillion in OBOR countries, though it does not say by when.

China will fuel jobs and economic growth for countries that lie on the path of the new Silk Road. But what about those which this route doesn’t pass over?

Countries like Australia and the US still want a piece of the action.

It’s why they’re teaming up with India and Japan to form a joint regional infrastructure scheme. Their scheme will ‘rival China’s multibillion-dollar Belt and Road Initiative,’ the Australian Financial Review reports.

Malcolm Turnbull was quick to describe the plan as an ‘alternative’ rather than a rival.

So how can they profit from China’s infrastructure spending spree?

Well, they could invest in the region directly, as one US official explained.

No one is saying China should not build infrastructure.

China might build a port which, on its own is not economically viable. We could make it economically viable by building a road or rail line linking that port.

Essentially, countries like Australia, the US and Japan could make piggyback investments. They could build the infrastructure which complements China’s One Belt, One Road.

This could be great for the Aussie government. But it’s also an opportunity for you to invest in stocks with exposure to China’s One Belt, One Road project.

What ‘One Belt One Road’ means for Aussie investors

This project is a massive investment opportunity for Aussie businesses. And that means it could also be a massive opportunity for you.

Imagine finding an Aussie construction firm with exposure to China.

There’s a chance they could sign multiple contracts to work on the world’s largest world-building project.

Such contracts would exponentially increase earnings in a short amount of time. And the company’s shares could reach new heights.

One Aussie firm that comes to mind is Aconex Ltd [ASX:ACX].

They help all members in the construction process communicate and share documents. As you can imagine, the applications of Aconex’s software across regions and languages would be extremely helpful.

Unfortunately, US software giant Oracle Corporation [NYSE:ORCL] made a quick bid for Aconex late last year.

The potential purchase saw the billion-dollar stock jump almost 50% in a matter of days.

So while Aconex might be off the cards for now, there are likely many more Aussie stocks that could profit from China’s One Belt, One Road.

What you’re looking for is exposure to China and the potential to sign contracts for this massive infrastructure project.

Start digging!

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The Daily Reckoning's mission is to look at the investment world and the financial world in a sceptical and contrarian way. To do that day in and day out and tell you honestly what we see, even if it isn't always popular. If you'd like to subscribe to an alternative look at the mainstream interpretation of events, join for free here.



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