Election Year Once Again Rekindles Hope for Infrastructure Push

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(Bloomberg) -- Once again, Americans yearning for an upgrade to the country’s outdated infrastructure will look to the presidential election in hopes of a grand plan.

While there’s wide agreement that the country’s roads, bridges, railroads and airports and other public works are long overdue for help, there’s been scant action despite a lot of big talk. The American Society of Civil Engineers has said more than $2 trillion in additional funding is needed by 2025 alone.

The World Economic Forum this year ranked the U.S. 13th in matters of infrastructure, according to its global competitiveness report. Nations that listed higher included Singapore, Hong Kong, Switzerland, Japan, Korea and Spain.

Meanwhile, a global airport ranking report from travel advocate AirHelp, didn’t get around to naming a U.S. location until the 34th spot -- Atlanta’s Hartsfield-Jackson International Airport. Factors used to calculate the score include on-time performance, cleanliness and queues.

“Comparing the U.S. airports with the hi-tech airports in Asia Pacific and Middle East is like comparing two different worlds,” Bloomberg Intelligence analyst Sonia Baldeira said.

Just like 2016, the presidential election will shine a spotlight on the sad state of the nation’s infrastructure. Democratic front-runner Joe Biden is touting a $1.3 trillion proposal for major investments in transportation, with an eye on modernizing infrastructure and moving toward net-zero greenhouse gas emissions. It’s also a focus for other leading candidates.

Ahead of the previous presidential election, then-candidate Donald Trump promised a $1 trillion infrastructure proposal. But the plan his administration released in 2018 floundered after critics said it relied too much on encouraging spending by states and localities and that much more federal money was needed.

Hopes for passing a major federal bill in Trump’s first term essentially ended in May after a meeting with the president and Democrats on a proposed $2 trillion plan blew up, and trade assumed a bigger role on the president’s agenda. While there’s broad bipartisan support for improving infrastructure, there’s no agreement on raising federal fuel taxes or other ways to pay for it.

“It is now even lower in the list of things that he needs to do before he gets to November,” Bloomberg Intelligence’s Baldeira said, pointing to the long-drawn trade negotiations with China.

Election Year Once Again Rekindles Hope for Infrastructure Push

But stocks tied to infrastructure don’t seem to mind. The Global X U.S. Infrastructure Development ETF -- with top holdings including Eaton Corp., Fastenal Co. and Emerson Electric Co. -- has risen 32% this year. And the iShares U.S. Infrastructure ETF is up 23%. Those compare with a 28% increase in the S&P 500 Index over the same period.

Some investors remain cautious, watching as the China-U.S. trade talks fully play out. Any resolution -- interim or final -- of the trade negotiations could take out some of the uncertainties and lure investors back. Global X research analyst Pedro Palandrani remains hopeful.

“Infrastructure investment is not a matter of if but when,” he said.

A big investment announcement, even if it does not translate into contracts and and a bump to revenue for a few more years, would give the stocks a jolt. However, money managers and analysts said the group may still do better next year even without it.

“We have seen a lot of local funding and private funding happening around the world and these companies continue to benefit from that,” Palandrani said.

Citigroup analyst Andrew Kaplowitz said that in the absence of a more comprehensive federal infrastructure bill, state and local governing bodies, have started to ramp investments, often backed by measures like dedicated tax/funding sources. Such spending collectively accounts for about three-fourth of public infrastructure related spend in the U.S., he said.

The performance of building materials stocks such as Martin Marietta Materials Inc., Vulcan Materials Co. and Summit Materials Inc. especially stand out within the sector, and are all expected to continue to their strong run, helped by strong demand.

Overall, money managers struck a positive note for the sector even if a plan is not passed in 2020.

Infrastructure stocks have cheaper valuations compared to the broader industrial group and are poised to benefit from mega trends like urbanization that require more roads and bridges, Christopher Dhanraj, head of U.S. iShares Investment Strategy at BlackRock in New York, said in an interview.

“We should expect infrastructure investment to increase in the coming year,” Dhanraj said.

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