Biden's Infrastructure Spend and Its Potential Impact on Aussie Shares
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Economic Insightss 1 April 2021 Biden’s infrastructure spend and its potential impact on Aussie shares The US Administration has revealed plans to spend US$2 trillion to revitalise the country’s ailing and neglected infrastructure over eight years, in a bid to further strengthen the economic recovery. If passed, the American Jobs Plan presents potential opportunities for a number of Australia’s listed companies and sectors. US President Joe Biden aims to increase taxes on higher earners and hike the corporate tax rate to 28 per cent from 21 per cent to pay for the strategy, reversing much of the previous administration’s tax cuts. As part of the plan, US$621 billion is earmarked for the country’s infrastructure, such as roads, bridges, highways and ports, while US$400 billion will target affordable housing and another US$300 billion will go towards reviving the country’s manufacturing. Biden’s plan will also target the electric grid, nationwide high-speed broadband and the country’s clean water supply, with a significant focus on green initiatives. Impacts If passed, the extra money could flow through to those Australian companies involved in construction and materials, such as BlueScope Steel (BSL), James Hardie (JHX), Boral (BLD) and Transurban (TCL). Thematic ETFs targeting infrastructure, materials or electric vehicles (EV) could also experience a Biden- bump if the bill is successful. EV ETFs have already gained since the President’s inauguration in January, playing on the new administration’s renewable energy priorities. The Nasdaq-listed Global X Autonomous & Electric Vehicles ETF (DRIV) has rallied 10.72% since the start of the year, for instance. Risks While the plan has been revealed it still needs to pass a deeply divided congress. The administration has had success recently, passing its US$1.9 trillion relief bill that put stimulus money directly in people’s hands among a number of other measures, but it failed to increase the country’s federal minimum wage. With a senate split 50/50—Vice President Kamala Harris providing the deciding vote—there’s every chance the infrastructure plan could be considerably watered down. If passed in full, it will represent another big leg of stimulus thrown at the US economy. Taxes will pay for some of the program, but the US Government will need to borrow more to cover the cost. Bond prices have sold off significantly this year, causing yields on US 10-year Treasury notes to rise by 90 basis points since the end of January, increasing borrowing costs substantially. Rising bond yields can be positive for financials, but negative for companies that rely heavily on credit. What next? Biden and House Democrats want the bill passed by July 4, so there’s a lot of time for the market to digest the plan and adjust prices accordingly. Now would be a great time to review your portfolio and make sure your allocations reflect your view on what this means for Australia’s sharemarket. For a refresher on how to analyse, measure and manage your risk, click here. Twitter: @commsec Economic Insightss 1 April 2021 IMPORTANT INFORMATION AND DISCLAIMER FOR RETAIL CLIENTS The Economic Insights Series provides general market-related commentary on Australian macroeconomic themes that have been selected for coverage by the Commonwealth Securities Limited (CommSec) Chief Economist. Economic Insights are not intended to be investment research reports. This report has been prepared without taking into account your objectives, financial situation or needs. 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