Infrastructure shows resilience in face of | Australian Markets

Recent market efficiency has indicated a swing in direction of listed infrastructure and away from equities amid ongoing volatility and tariff uncertainty, in response to commentary from ClearBridge Investments.

Portfolio Manager Shane Hurst mentioned listed infrastructure has proven its resilience regardless of the Trump administration’s numerous tariff measures and reversals, because the S&P Global Infrastructure Index was up 8 per cent in the 12 months thus far via April in comparison with the the S&P 500’s 5 per cent fall.

“This downside protection is what we would expect from listed infrastructure. Despite this strong performance, however, valuations are still attractive on a risk adjusted basis, though there are some subsector nuances that we believe are worth observing,” he mentioned.

“The outlook for utilities stays constructive and largely insulated from tariffs. Be they electric, fuel or water utilities, these companies predominantly service native catchments and don’t have direct publicity to worldwide trade.

“Certain components of a U.S. utility’s supply chain, such as electric components, may be sourced from overseas, but our conversations with management teams have highlighted that the exposure is relatively limited. And while utilities will continue to reconfigure their supply chain, we expect they will be able to pass through any tariff-related cost inflation to the customer via the allowed return mechanisms afforded them by regulators.”

Hurst famous that electric and fuel utilities are additionally benefitting from robust artificial intelligence (AI) and knowledge centre growth in the US.

“There is rising recognition that fuel will proceed to play an important function in offering steady baseload era for a number of a long time to return, notably as AI knowledge centres are rolled out and call for more energy. Gas pipeline corporations reminiscent of TC Energy have additionally been increasing their networks to facilitate this demand.

“Beyond AI data centres, gas demand is structurally in growth mode because of increasing LNG exports and coal-to-gas switching. Oil and gas flows between Canada and the U.S. are exempt from tariffs due to the existing USMCA trade agreement.”

Hurst additionally highlighted the influence of tariffs on freight exercise, particularly because the trade relationship between the US and China worsens.

“However, we note that shipments from China to U.S. ports have dropped more than 30% since the trade escalations in April, as of May 9. The outlook for freight for the rest of 2025 is uncertain and largely depends on how trade negotiations unfold,” he mentioned.

“An early trade deal between China and the U.S. is doubtlessly a robust constructive catalyst for the sector, notably given how crushed up valuations are at the moment. All else equal, nevertheless, larger tariffs than existed previous to April 2 ought to weigh on trade and rail volumes.

“The European airport inbound market is strongly rising with bookings in the May to June period more than 7% larger 12 months over 12 months. However, the outlook for the transatlantic route is combined at the moment on account of an aversion to journey to the U.S.

“While Europe-bound travel from the U.S. is pointing to 2% growth compared to last year, Europe outbound to the U.S. is currently 2% lower than a year ago.”

Similarly, the destiny of renewables additionally hangs in the stability because the sector awaits a decision to the tax credit situation.

“Our base case expectation is for a gradual winding down of the production tax credits for wind and investment tax credits for solar,” Hurst mentioned.

“But there is also a situation the place credit are eliminated altogether, given the administration’s supportive stance for fossil fuel. Yet, both method, we don’t anticipate any significant adjustments to the growth prospects for onshore wind and photo voltaic, which proceed to be pushed by state-based targets and economics.

“Overall, in periods of heightened uncertainty and volatility such as the one we are in today, we expect infrastructure to exhibit resilience. With valuations currently attractive and fundamentals constructive, such resilience should only add more support to an attractive narrative for listed infrastructure.”