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Opportunities in the Mega City

Barron’s published an article yesterday illuminating the speedy development and expansion of urban areas around the world. Stateside, the decline of industrial hubs like Detroit seems to

Barron’s published an article yesterday illuminating the speedy development and expansion of urban areas around the world. Stateside, the decline of industrial hubs like Detroit seems to overshadow the outward flowering of locations like New York City, Boston, Washington DC and Los Angeles. In the U.S., we are familiar with this trend: the quickening of its pace scarcely recognized until its impact reveals an observable shift or problems that must be solved. Certainly, the influx into cities will present a litany of problems and those that can solve them, or invest in the companies that can, will enjoy healthy profits.

By 2025, there will be an estimated 81 new cities in China alone. 25 years after that, the United Nations Projects proposes that 70 percent of an estimated 9.2 billion people will be living in metropolitan areas.

The development and expansion of cities will require a colossal shift in infrastructure. The larger the area and the population, the more transportation challenges and waste difficulties it faces. Pressure on electric lines increases sharply and needs to be adjusted in order to account for the greater strain. Buildings need to grow higher and hospitals need to grow larger.

While these advancements will naturally manifest themselves over time rather than occurring all at once, there remains tremendous fiscal potential in the demand for growth. The appeal of a higher income, 30 percent above rural areas on average, and more diverse employment opportunities will continue to attract people to cities, just as their presence will drive new business.

This, in turn, creates buying opportunities in the areas of construction, eco-engineering and technology, which can be predicted to play an increasingly larger role the new, mega metropolis. Among the hats technology will come to wear is that of the watchdog. Surveillance technology is costly to purchase and install, a boon to tech companies; but in the long term, it will reduce on the amount of work being done by actual man power, which serves to benefit the government. With rising costs, from necessary waste management to transportation upgrades, cutting costs will become inevitable.

While preventative surveillance possesses a distinct big brother quality for most Americans, developments like this are already occurring in places like China’s Chongquing.

Western tech corporations, including Cisco Systems (CSCO) were reported in July to have begun development on an ambitious project of this nature in Chongquing. The city plans to install a system of 500,000 cameras in public spaces in order to better manage crime and identify political dissent.

Beyond their work in Chongquig, Cisco is engaged in wiring the entirety of the emerging South Korean City of New Songdo for broadband access. The uninterrupted wireless is in place in order to promote the most efficient use of the space. Each inch of the city is engineered to support maximum capacity and facilitate efficiency. The project is expected to be completed in 2015. In the meantime, these undertakings should help Cisco’s long-ailings bottom line. If New Songodo and Chongquing are satisfied with the results of these ventures, the company could stand to generate massive profits on similar projects across the emerging world.

What is happening in China and albeit, more slowly in the U.S., is something of a return to Pangaea. Smaller cities will become larger cities and their broadening borders will eventually expand until they are unified with one another. The concept of this megalopolis has been discussed at length by sociologists after being introduced in  Herman Kahn’s 1965 work, Daedelus. In Daedelus, Kahn describes three megalopolises, one on the West Coast, one on the East and another in the Midwest. Kahn believed such cities as BosWash (extending from Boston to New York) would begin being established in the early part of the 21st century.  He failed to anticipate the much faster rise of the more populated developing nations like China, where the megalopolis will likely become a reality much sooner.

The opportunities presented by this shift are enormous. It will become necessary to make more eco-friendly and energy efficient products in order to reduce the level of pollution and allow for an ongoing influx of people. Companies that specialize in maximizing efficiency for homes and businesses will thrive.  The environmental sustainability of residential construction has been among the major concerns of the Chinese government, not only in Chongqing, but across the nation. At present residential building types are varied from the traditional architecture of the nation to the type of highly efficient sky scraper designs in cities like Shanghai. Among the problems this presents, is that the domestic energy consumption, particularly for building services, weighs on the the power generation and transmission systems. In order for the megalopolis to become reality as China intends, things will need to be restructured. In Chonhqing, as well as many other areas of China, freezing winters and hot summers require nearly year round air conditioning or heat. The expenditure of resources for this to be possible in a population the size of China’s prompted the government to create compulsory regulations for new buildings in order to insure a quality standard of efficiency.

Naturally, the companies that are best at creating efficient and attractive buildings will be those that thrive in the coming years. Among the Chinese corporations listed as contributing to these developments is Yuanda Corp. (2789), a technology company researching new methods for lowering energy consumption, for instance, natural gas air conditioners.

Another enterptise with a history of forward thinking in their approach to energy efficiency and more sustainable infrastructure is Siemens (SI), which focuses on, among other things, developing technologies, OSRAM, industry solutions and mobility as well as fossil power generation, renewable energy, power transmission and power distribution. Its range puts it ahead of competitors in the new terrain.  SI, provided you believe in its potential for growth and involvement, is also well priced right now following the broad exit from equities.

Traders considering an investment in broadening infrastructure, but unwilling to put all their eggs in one basket, may want to consider the Forward Global Infrastructure Fund (FGLRX) as recommended by Barrons. The fund is designed to profit from the swelling population in urban areas, especially in the emerging markets. Based in San Francisco, it has $5.7 billion in assets spread across a variety of companies with a hand in the shift toward mega cities.

The proposed deal includes stock, so US Steel shareholders will get to participate in all of the upside.