US 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

With the U.S. Senate passing a $1 trillion bipartisan infrastructure bill Tuesday (local time) that will invest massively in roads, railways, bridges and water facilities, cyclical and energy sector stocks are expected to benefit the most from the 10-year plan.

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

On the Korean market, some representative cyclical stocks advanced despite the KOSPI's 0.7 percent retreat, Wednesday (KST), while local government bonds interest rates rose 0.63 percent to 1.92 percent. The greenback meanwhile remained rose 0.47 percent against the Korean won.

Steel giant POSCO advanced 2.37 percent, with foreign investors' net-buying of 140 billion won ($121 million) worth of shares, while Hyundai Steel also rose 1.18 percent on the back of foreign investors. This is impressive given foreign investors' selling spree Tuesday.

Energy and materials companies also benefited from the news. SK Materials, a company manufacturing industrial gas, rose 5.31 percent with overseas investors buying 36.4 billion won in shares.

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

The $1 trillion infrastructure bill could provide fresh momentum to global stock markets, according to analysts.

“The infrastructure bill could provide momentum for some cyclical growth, calming market concerns over a slowdown in 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.

The analyst added that 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 seen as upward pressure on market interest rates, Park added.

Other experts stressed an importance of having a long-term perspective in analyzing market impacts of the infrastructure bill, rather than seeing it as a temporary event.

“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 U.S. employment could be ameliorated.”