Think of the Victorians. In Britain they created the London Underground, they built roads, railways, sewage systems, pipes for our water supply. They created the foundations of the UK economy. In the US, the railroad boom led to the rise of large scale manufacturing and the emergence of famous brands such as Heinz.
I think we could be set to see a return to a similar level of activity. While all around stock markets flash red, a new opportunity has emerged. It’s the great infrastructure boom of the 20s. That is, the 2020s.
Cheap money and the budget
The Bank of England has cut interest rates to just 0.25%. Earlier this week, the yield on some UK government bonds went negative. In the US, Treasury yields across the spectrum are less than 1%. That’s never happened before. President Trump is putting the US Federal Reserve under pressure to cut US interest rates to less than zero.
We could even be on the verge of negative interest rates on both sides of the pond — just like in the euro area. It is as if markets are begging governments to borrow and spend.
In the US, there is talk of tax cuts, but many economists are saying infrastructure should be the home of this cheap money.
The UK chancellor, Rishi Sunak, is playing his part having earmarked in his budget in excess of £600bn to be invested over the course of this Parliament.
From Victorians to science fiction
It could be like Victorian times all over again. It’s time to build. That means new state of the art railways, investing in the UK’s leaking reservoirs, and laying down fibre optics across the length and breadth of the land. Then there are houses to build, tunnels across the Irish Sea, and maybe, just maybe, adding a couple of lanes to the M25. There could be money for new technology-related infrastructure spends. That could mean a hyperloop, electric car charging ports, wireless car charging areas next to roads or in front of traffic lights. The infrastructure spend may conjure memories of Victorian times. Perhaps the end result will be something closer to a vision from a science fiction book.
The investment opportunity
Getting back down to earth, this infrastructure revolution will create opportunity for infrastructure companies. That includes building materials group CRH, or construction companies such as Balfour Beatty, Kier Group, Galliford Try and Morgan Sindall.
I’d also research companies that may one day see an IPO, such as Mace, which built the Shard.
Be careful, of course. Look at the balance sheet before committing. The construction business is enormously competitive — as the tale of Carillon illustrates, things can go terribly wrong, and Kier has its troubles too.
I particularly like Morgan Sindall, and CRH for global exposure while Balfour Beatty has just revealed an impressive set of results. The sector has taken a hammering in the last few weeks, but while I can see why stock markets have fallen on coronavirus fears, there has been a disconnect in market logic when applied to construction.
Yes, I think we may well see a global recession as a result of the virus, but governments, able to borrow money so cheaply and anxious to kick-start the economy, should help create a construction boom, as a result.
