Why China’s One Belt One Road Has Investors Salivating
China is determined to become a global power. To increase its global economic and political footprint, China is implementing what promises to be the largest infrastructure project in history: One Belt, One Road (OBOR).
OBOR involves more than 60 countries making up nearly two-thirds of the world’s population, stretching from China’s Yellow Sea in the east to the Dutch port of Rotterdam in the west. Total investment in OBOR could reach $1 billion over the next decade. Much of that will come from the Chinese government and state-owned banks.
OBOR is a major power play by China. Many analysts view the project as a strategic challenge to the US. By increasing its presence in Central Asia and Europe, the thinking goes, China hopes to supplant the US as the world’s leading power.
Will China succeed? We won’t know for decades. But we already know one thing: Companies from all over the world will benefit from the project.
American Companies Can Benefit from OBOR
International sales are crucial for companies traded on US stock markets. S&P 500 companies made 44.3% of their sales outside of the US in 2015, according to data from the Wall Street Journal. Asian sales make up a pretty small proportion of that—7.8% in 2014—but there’s a lot of room for growth.
That’s where OBOR comes in. The Chinese government needs foreign help to implement the project. Engineering and construction firms are chomping at the bit to provide the contacts, expertise, and technology that Chinese companies can’t.
A roster of US-based heavy hitters including Honeywell International Inc., General Electric Co., and Caterpillar Inc. are all jockeying for position on the OBOR.
John Rice, the CEO of GE’s global growth and operations department, gushed about his company’s current operations in Asia: “We are on the ground in almost all of the Belt and Road countries, with local knowledge and understanding, as well as access to technology and deep domain expertise.”
Stocks Worth Betting On
GE is one stock we’re following closely. The company projects OBOR to add $5 billion to its annual sales. That’s already starting to happen. GE recently sold two gas turbines to a Chinese company building a power plant in Pakistan. The company is having a tough year on the stock market—losing 13% of its value from the end of December to the end of June. The long-term outlook is positive, however.
Siemens (SIEGY) has been operating in China since 1899 and each year makes about $7.5 billion in sales there. Given its strong position, Siemens should have privileged access to power transmission, industrial automation, and business services contracts. Siemens’s stock has been gaining steadily in 2017, from $55.32 on January 3 to $69.15 by the end of June.
Honeywell (HON) also stands to benefit from OBOR. The US-based company recently provided a natural gas control system for a pipeline stretching from Uzbekistan to China. OBOR should bring similar opportunities, as well as contracts to provide systems for everything from airports to hotels.
Stock market investors have been bullish on Honeywell in 2017. At the time of writing, it was up 13.7% from the start of the year.
Conclusions
OBOR is an immense project that will involve thousands of companies. Most of those will be Chinese—the state-sponsored Industrial and Commercial Bank of China Ltd. gives preferential firms to Chinese companies.
However, the Chinese government is going to need outside help, especially from engineering and construction firms that specialize in advanced technologies.
OBOR looks like a strategy to push the US out of Central Asia. In the process of doing that, American companies—and stock market investors—could win big.