The US presidential election is surging, and the “Trump & Harris deal” all point to a new blue ocean of infrastructure investment

The Zhitong Finance App learned that as the US presidential election day on November 5 approaches, the “Trump deal” and “Harris deal” in the US stock market are once again in the spotlight. The so-called “Trump deal” and “Harris deal” refer to investors making investment decisions based on the current probability of presidential candidates winning the election and the different economic policies and political actions they may pursue after their election.

For example, on July 15, Trump was hit by a historic shooting incident, which sparked a “Trump deal” boom in the market. The US bond yield curve has become steeper. Bitcoin prices have risen sharply, and the overall US stock market has risen. Stock prices in the banking, healthcare, and oil industries are particularly prominent. Trump Media Technology Group (DJT.US)'s stock price increase reached 31.37% on the same day. Another example is that on September 10, Trump and Harris had their first televised debate, and the public generally believed that Harris had an advantage in the debate. As a result, the “Harris Deal” was sought after, and “Harris Concept Stocks” represented by photovoltaics and new energy showed strong performance on the same day.

Whether it's a “Trump deal” or a “Harris deal,” they are essentially the market's anticipated reaction to the possible economic impact of future administration policies, and are closely related to the candidate's policy agenda. Although the two presidential candidates have policy differences, and many investors regard the “Harris Deal” as the opposite of the “Trump Deal,” the two parties still agree on certain policies, and infrastructure construction is one of them. This consensus provides a relatively stable investment direction for the market. Regardless of the election results, infrastructure investment is likely to be a key driver of economic growth.

Infrastructure investments are a solid foundation for cross-party cooperation

The Infrastructure Investment and Jobs Act (IIJA), the Inflation Reduction Act (IRA), and the CHIPS Act (CHIPS Act) are expected to inject hundreds of billions of dollars into the US infrastructure value chain over the next few years. IIJA provided $1.2 trillion in funding for infrastructure projects from 2021 to 2026, of which approximately $492 billion has not been allocated. Furthermore, private spending associated with these legislations presents potential opportunities for US infrastructure companies. As of mid-March 2024, private companies announced $676 billion in manufacturing investments during the Biden administration.

Figure 1

As November's presidential and legislative elections approach, there is uncertainty about whether these policies will continue. However, infrastructure is generally widely supported by both parties and has been the focus of Democratic and Republican governments and legislators. At the federal level, the Biden administration's efforts were consolidated by the IIJA. The bill, also known as the Bipartisan Infrastructure Act, received strong cross-party support in 2021. During the Trump administration, both parties also expressed interest in strengthening federal support for infrastructure, although ultimately no major infrastructure spending plans were passed.

Given the relatively strong support of the two parties for the IIJA, it is expected that the bill is unlikely to be overturned regardless of the election results. Cross-party support and private spending at the state and local levels may also continue to create opportunities. In the 2024 first quarter earnings conference call between TTEK.US (TTEK.US) and Jacobs Solutions, management pointed out the design opportunities brought by IIJA and state-level financing plans.

CHIPS Act: America's Key Strategy to Seize Global Artificial Intelligence Leadership

In the context of heightened geopolitical tension, the strategic importance of maintaining AI leadership becomes particularly prominent. Semiconductors are essential hardware for artificial intelligence technology, and the government's efforts to promote semiconductor R&D and manufacturing are likely to continue to receive support from both parties. The CHIPS Act represents the joint efforts of the two parties to maintain America's technological advantages and enhance national security interests. The CHIPS Act has not been the target of any legislative repeal efforts since it was enacted in August 2022, so the bill is unlikely to be a target for repeal regardless of the outcome of the 2024 election cycle.

Looking ahead, this means infrastructure companies can continue to benefit from the expanding US semiconductor manufacturing landscape. The Biden administration has begun allocating funds from the CHIPS Act's $39 billion for semiconductor manufacturing incentives. Another $24 billion is spent on tax credits for chip production, and several billion dollars for semiconductor R&D and workforce development. By the end of February 2024, the Department of Commerce had received more than 600 declarations of interest from companies regarding CHIPS Act financing opportunities.

Private investment commitments to semiconductor and electronics manufacturing totaled $244 billion, or 36% of the $676 billion private manufacturing investment announced since 2021. Even before the CHIPS Act was enacted, companies such as TSMC, the world's largest contract chipmaker, and Intel, America's largest chipmaker, were in negotiations with the Trump administration to expand their manufacturing operations in the US. In May 2020, TSMC announced plans to build its first US manufacturing plant in Arizona. The plant is expected to begin initial production in 2025. Following the passage of the CHIPS Act, TSMC announced plans for a second manufacturing plant, which could begin production in 2027 or 2028. Overall, the company invested more than $40 billion in these two plants.

The IRA may become the focus of the Republican Party's attention, covering core provisions such as electric vehicle tax credits

Unlike the IIJA and CHIPS Act, the IRA was passed along partisan lines during the 2022 coordination process. Given that the IRA represents the largest investment the US government has ever made to tackle climate change, opposition from conservative lawmakers is likely to continue in some form. In the first year of the bill alone, Republican lawmakers tried 31 times to repeal the program or specific IRA provisions, but none were successful. Former President Donald Trump has said that if elected, abolishing the IRA will be his top priority.

But in reality, even if the Republican Party sweeps the White House, the House of Representatives, and the Senate, complete abolition would be extremely difficult. So far, IRA incentives have benefited Republican-led states, boosting employment growth and private investment. Since the IRA was passed, about 60% of private investment in electric vehicles (EVs), batteries, cleantech manufacturing, and renewable energy projects went to the states Trump won in 2020. Others estimate that the share of IRA-related funds flowing to Republican-leaning states is as high as 66%. Furthermore, the Republican Party holds 8 of the 10 congressional districts with the most announced IRA-related investments. As a result, there are likely enough lawmakers, businesses, and voters to oppose complete abolition.

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Still, the Republican Party's goal is likely to target specific provisions, particularly tax credits for eligible new and used electric vehicles and electric vehicle charging systems. The electric vehicle tax credit has always been central to Trump's criticism of the IRA in his campaign speeches. In the short term, such efforts may make the price of electric vehicles higher than similar internal combustion engine vehicles; however, with advances in battery technology and economies of scale, the price of electric vehicles is expected to drop further. Furthermore, removing tax credits may accelerate the natural evolution of the market towards electric vehicles and push manufacturers to speed up R&D efforts to reduce costs and provide more competitive prices.

Increased competition in the electric vehicle market and ongoing price wars are putting pressure on car manufacturers to find ways to make electric vehicles more attractive to a wider range of consumers. Furthermore, although the purchase subsidy will end in 2022, electric vehicle sales in China increased 29% year over year in 2023, which indicates that electric vehicle sales are likely to grow strongly even without purchase incentives.

As a result, infrastructure companies are likely to see continued opportunities in the transportation industry's biggest transformation in more than a century. For example, the Arizona Department of Transportation selected infrastructure consulting firm AECOM to develop plans to deploy electric vehicle charging stations across the state. Equipment vendors such as Eaton and Hubble provide charging devices for electric vehicles.

The clean energy tax credit is one of the largest components of the IRA budget, and it may also face administrative action to try to abolish or limit its impact. However, solar investment tax credits (ITC) and other clean energy tax credits have previously been supported by Democrats and Republicans, and some have even been proposed by bipartisan groups of legislators. The ITC was updated every year during the Trump administration, even during the Republican-majority congress. The IRA extended the ITC from 2022 to 2032, removing the uncertainty of annual updates.

Under the Republican administration, other provisions that focus on energy efficiency or hinder oil and gas (O&G) activity may be targeted, while those supporting the production of critical minerals and batteries may be safe because of their strategic importance to national security. Policy changes that support broader O&G operations and continue to support mining activities may present different opportunities for infrastructure companies.

How to lay out America's infrastructure?

It is true that this election cycle has brought uncertainty, but at present, it seems that regardless of the composition of the US government, many major trends and smooth winds driving infrastructure development will continue. Companies across the US infrastructure value chain are only just beginning to benefit from significant public and private investment inflows into the industry, and this trend will continue. From roads, airports, and bridges to manufacturing facilities, broadband internet, and renewable energy, modernizing America's infrastructure provides investors with many diverse long-term investment opportunities.

To achieve long-term stability in their portfolios, investors may consider setting their sights on exchange-traded funds (ETFs) in the infrastructure sector. Here are three infrastructure ETFs to watch:

1. iShares US Infrastructure ETF (IFRA.US)

IFRA, launched by BlackRock, is managed by BlackRock Fund Consultants and focuses on the materials, industrial, capital goods, construction, engineering, machinery, transportation, railways, and utilities industries in the US open market. Using representative sampling techniques, the fund aims to track the performance of the NYSE FactSet US Infrastructure Index and invest in growth and value stocks with different market capitalization.

As of 2024, IFRA's asset management scale (AUM) was US$2.76 billion, and its largest holdings include Vistra Corp. (VST.US), Constellation Energy Corporation (CEG.US), and NRG Energy, Inc. (NRG.US).

According to information, IFRA pays dividends of 0.82 US dollars every year. The dividend yield at the current price is 1.75%, and the four-year average dividend yield is 1.88%. IFRA is up 30.3% over the past year and 17.6% over the past nine months, closing at $48.08 on the previous trading day.

2. Global X US Infrastructure Development ETF (PAVE.US)

PAve, launched by Global X Funds, is managed by Global X Management Company LLC and invests in construction engineering, infrastructure raw materials, composites, industrial transportation, and heavy construction equipment industries on the US open market. The fund uses full replication technology to track the performance of the Indxx US Infrastructure Development Index and invest in growth and value stocks with different market capitalization.

According to information, PAVE's asset management scale is US$8.41 million, and its largest holdings include Trane Technologies plc (TT.US), United Rentals, Inc. (URI.US), and Eaton Corp. Plc (ETN.US). PAVE pays a dividend of $0.24 per year. The dividend yield at the current price is 0.58%, and the four-year average dividend yield is 0.58%.

PAVE has risen 36.63% over the past year, and has risen 22.5% over the past nine months, closing at $42.38 on the previous trading day.

3. Industrial Select Sectors SPDR Fund (XLI.US)

Launched by State Street Global Investment Management, XLI is managed by SSGA Funds Management, Inc. and focuses on shares of industrial sector companies on the US open market. The fund aims to invest in growth stocks and value stocks with diverse market capitalization, and uses complete replication technology to track the performance of selected industry indices.

XLI has an asset management scale of US$20.03 billion and holds 80 shares. The largest holdings include GE Aerospace (GE.US), Caterpillar (CAT.US), and Raytheon Technology (RTX.US). XLI pays an annual dividend of $1.84, with a yield of 1.36% at current prices and a four-year average dividend yield of 1.50%.

XLI has risen 21.8% in the past 9 months and 35.5% in the past year, closing at $138.85 on the previous trading day.