U.S. infrastructure bill benefits local cyclical stocks

U.S. infrastructure bill benefits local cyclical stocks

U.S. President Joe Biden, left, listens as Vice President Kamala Harris speaks about the infrastructure bill passed by the Senate in the East Room of the White House in Washington, D.C., Tuesday. AFP-Yonhap

Steel, energy and materials sector viewed as top beneficiaries

By Anna J. Park

As the U.S. Senate passed a $1 trillion bipartisan infrastructure bill on Tuesday (local time), planning to provide massive investment in roads, bridges and waterways, it is expected that cyclical stocks as well as the energy sector will benefit the most from the 10-year investment plan.

The U.S. stock market hailed the agreement with the Dow Jones Index finishing at a record. The tech-heavy Nasdaq fell by 0.49 percent on Tuesday over concerns about rising interest rates, as the U.S. Treasury bond rate rose to 1.42 percent.

Similar patterns emerged in the Korean market scene, Wednesday. Local government bond interest rates rose by 0.63 percent, standing at 1.92 percent, while the greenback remained quite strong against Korean won by 0.47 percent. Some representative cyclical stocks also advanced despite KOSPI’s 0.7 percent retreat.

Steel giant POSCO advanced 2.37 percent, with foreign investors’ net-buying of 140 billion won ($121 million) worth of stocks. Hyundai Steel also rose by 1.18 percent on the back of foreign investors’ purchases. This is impressive given foreign investors’ selling spree of local stocks on Wednesday.

Energy and materials companies also benefited. SK Materials, a company manufacturing industrial gas, rose by 5.31 percent with foreign investors’ strong net-buying of 36.4 billion won.

KODEX Energy & Chemicals, an ETF tracking KRX Energy & Chemical index, also saw an increase of 0.18 percent. KODEX WTI Crude Oil Futures, an ETF following S&P GSCI Crude Oil Index Excess Return, also saw an increase of 1.66 percent on Tuesday, reflecting a rise in global oil prices following the announcement of the infrastructure bill.

The $1 trillion infrastructure bill could provide fresh momentum to global stock markets, as well as for both KOSPI and Kosdaq, analysts said.

“The infrastructure bill could serve as a cyclical growth momentum, attenuating market concerns over slowing down of the U.S. economy. The bill is expected to bring positive effects, particularly for cyclical stocks,” Park Sang-hyun, chief economist at Hi Investment & Securities, said over the phone.

The analyst added that the infrastructure agreement news has already been factored in the affected stock prices, the impact on the global market could be greater if Biden’s bigger $3.5 trillion package passes the Senate next month.

However, concerns about the U.S.’s deteriorating trade balance due to the massive spending bill could be viewed as an upward pressure factor to the market interest rates, Park added.

“As the bill will be implemented over a 10-year term, its annual spending is not as massive as one supposes, considering the U.S. government’s huge annual budget plan,” said Stephen Lee, chief economist at Meritz Securities. “What is more significant for the market’s focus would be how fast the U.S. employment could be ameliorated.”

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