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How to Invest in the Urbanization Explosion

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Some 60 million to 70 million people will be added to the world’s urban population every year over the next three decades.

In a white paper released Monday, Prudential Investment Management discusses this unparalleled urbanization boom and the avenues for long-term investment it is opening.

According to the paper, 1 billion new urban middle-class consumers in emerging markets now have the means to make retail purchases, allowing for direct and diversified investment opportunities.

By 2020, it notes, a projected 4 billion people will use the Internet. As a result, global opportunities will abound for public and direct private investments in IT infrastructure, broadband, data centers and cell towers.

In addition, rapidly growing new cities in emerging markets will require expanded primary airports, major seaports and high-speed intercity railways.

Companies that provide anti-pollution solutions such as clean energy, waste management and water treatment are also attractive investment candidates as they service the nearly half of the world’s urban population that is exposed to unhealthy conditions.

As well, new mixed-use commercial and residential developments for the increasing numbers of people and companies attracted to urban lifestyles will be highly attractive investments.

Finally, the paper notes that the world will need to produce 70% more food by 2050 than it does today in order to feed the vastly increased urban population. Creation of an efficient agriculture supply chain will require innovative and sustainable production methods and improved transportation infrastructure, resulting in many private and public investment opportunities.

The paper says insufficient market mechanisms make many potential opportunities arising from the urbanization difficult to access. Instead, it says, institutional investors should focus on four investment themes encompassing 10 investment ideas:

  • Urban infrastructure: Wired cities, megacity interconnectivity, anti-pollution, and replacement and improvement of old assets
  • Real estate: Urban renewal, retail outlets and logistics support, and economical housing options
  • Consumer goods and services: New consumer class, global luxury and industrialized agriculture

“Understanding how megatrends affect asset classes is crucial as CIOs move toward a long-term strategic portfolio management approach that takes them beyond simply beating short-term benchmarks,” Prudential Investment Management’s chief executive David Hunt said in a statement.

“As we considered urbanization, we drew from expertise in our global investment businesses specializing in public and private fixed income, public equity, and real estate, to examine its impact across asset classes and share our best thinking on new investment ideas for capitalizing on the long-term opportunities created by expanding cities around the world.”

— Check out Grantham: ‘7 Lean Years’ Now Permanent  on ThinkAdvisor.