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Time to look closely at infrastructure plays

Donald Trump’s victory in the US presidential election is likely to herald a massive surge in infrastructure spending. In the UK, the government is also set to increase infrastructure spending. It’s time to take a look at the sector.

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.
London skyline
Source: Bloomberg

If he sticks by his campaign pledges, Donald Trump’s election victory will soon unleash a $600 billion programme of infrastructure building and upgrading in the US. In the UK, chancellor of the exchequer Philip Hammond is also set to raise infrastructure spending later this month. Japan has already announced a vast fiscal package worth around £200 billion — nearly 6% of the country’s GDP.

This marks a step change in policy. During the financial crisis, governments relied on central bank monetary policy – the central banks pumping cheap money into the economy – to stabilise things as governments took on huge piles of debt from the banking system through bailouts. This government debt still lingers, but there’s an acknowledgement that monetary policy alone has achieved all it can and is having a number of bad side-effects. Therefore we are going to see a return to fiscal policy — governments boosting spending in targeted areas like infrastructure to boost the economy and create jobs. The debt problem, which can only get worse with big fiscal programmes, is for another day now it seems.

Massive new fiscal spending on infrastructure opens up opportunities. These are often long-term projects, but the companies set to benefit will see an immediate impact. That’s the reason that FTSE 100-listed Wolseley and Ashtead Group, two British companies with big US operations who would benefit from an infrastructure splurge, both rose strongly on the day Trump was elected as the 45th US president and are still rising. Wolseley makes plumping supplies and Ashtead is an equipment rental company.

It was a similar story in the US. The likes of Fluor Corp, Jacobs Engineering, AECOM, MasTec, Granite Construction, KBR, and Tutor Perini, among others, led the S&P 500 gainers.

Back in the UK, where mega-projects like a new Heathrow runway, the new Hinkley Point nuclear power plant and the second high-speed rail link between south and north are also in the works, WS Atkins, Balfour Beatty, Costain, Kier Group and Carillion are among the sector stocks to weigh up.

A technical look at Ashtead and Wolseley

Ashtead shares have managed to break through the all-important £13.73 resistance level yesterday, creating a new all-time high for the stock. A double bottom pattern formed over the past two months may not be technically textbook, considering it comes in the middle of an uptrend, yet the fact is we had a clear resistance level cleared out without the creation of a new low below £11.84. The correction appears to be well and truly over, with the 200-week simple moving average (SMA) proving the saviour of this long-term consistent uptrend. With that in mind, further gains seem likely, with a bullish view in play unless we break back below £11.84.

A similar story for Wolseley, which has broken to a new all-time high this week. Coming off the back of a similar correction into the 200-week SMA, we have seen the long-term uptrend resume once more. From a technical point of view, it is a relatively simple one, with a long-term uptrend looking likely to continue. As such, a bullish outlook remains in play unless we see price close back below £41.00. To the upside, trendline resistance has the potential to limit this week’s gains, yet the trend is ultimately likely to be strong enough to push past this resistance. 

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.  Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. 

CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.