Shares in Ashtead Group PLC (LON:AHT) rose alongside other firms from the construction following reports that Donald Trump may be considering plans to spend his way out of the US’s economic depression brought on by the coronavirus pandemic.
According to a Bloomberg report overnight, the US president is considering a US$1 trillion infrastructure spending package to boost the American economy, as well as make some headway on prior campaign pledges to improve the country’s crumbling infrastructure.
If approved, the plan will add an extra US$260bn to a similar funding package proposed in January by the Democratic-led US House of Representatives, although Trump has previously called for even more spending around levels of up to US$2 trillion.
The plan is expected to focus on improving roads and bridges, while the rest of the cash will be used to build a US 5G network and expand internet coverage into more rural areas.
Construction groups cash in
The prospect of an impending flood of cash into US infrastructure spending has proved to be a boon for London-listed firms with a strong presence in the US construction sector.
Ashtead, which provides rental services for construction equipment, saw its shares jump 10.6% to 2,672p in early afternoon trading on Tuesday.
Meanwhile, FTSE 100 plumbing and heating group Ferguson PLC (LON:FERG), which is planning to relist in the US as part of a pivot to North American following the spin-out of its UK Wolseley business, climbed 7.5% to 6,488p. Fellow blue-chip firm, building materials firm CRH PLC (LON:CRH), was also 7.8% higher at 2,902p.
A boom in US infrastructure spending could also benefit investment funds looking for sustainable returns amid the ongoing market volatility.
One such example is Waverton Investment Management, which recently listed infrastructure as areas of ‘positive social practices’ in its Enhanced Responsible Investment Service (ERIS), a product targeted at clients hoping to make more responsible investments.
The idea of spending government cash on large public works projects is nothing new, with economic theories around the practice emerging in the 1930s in response to the Great Depression.
At the time, British economist John Maynard Keynes advocated that in order to stimulate the global economy during a downturn, government’s should increase spending and cut taxes in order to boost consumption and restart the system.
Keynes’ theories contrast with more classical economic theories, which tend to promote a ‘hands-off’ approach to the economy and allow it to self-adjust.
While the theory may have fallen out of favour among economics academics in the latter half of the 20th century, the recent crash, followed by massive government stimulus to both prop up markets and sustain businesses and jobs during the pandemic, could be signs of Keynes making a comeback.