US President Donald Trump is famous for flip-flopping on trade policy. Just look at the Trans-Pacific Partnership (TPP) that he couldn't wait to break off and is now trying to worm back in.
Don't forget his aggression-to-affection for Chinese leader Xi Jingping either with his on-again off-again trade tariff talk.
But there's one policy that is likely to go through that will see billions of dollars in new US government spending – it's infrastructure building. Morgan Stanley thinks this is an areas ASX investors should be watching.
"Our team estimates that US government investment in infrastructure has been running below trend since 2010, and that the underinvestment from the past seven years has added to up nearly US$950bn," said the broker.
"The team believes infrastructure could be a main policy topic in the mid-term elections for both parties, and sees an opening for policy progress in 2019."
There are three stocks on the broker's buy list that are leveraged to this upcoming boom. The first is Boral Limited (ASX: BLD) which the broker has an $8.50 price target on.
It's not only new infrastructure that Boral will benefit from. Morgan Stanley noted that there is a US$420 billion backlog of repairs to US highways and that figure is increasing rapidly and the company is a direct beneficiary through its fly ash operations and its Denver Construction Materials business.
The second stock to watch is BlueScope Steel Limited (ASX: BSL) as the broker believes that the US$1.1 trillion infrastructure package could lift annual steel demand in that country by around 4% from 2017 levels.
BluesScope's North Star operations accounts for circa 15% of group revenue and it manufactures around 2 million tonnes a year at this facility.
Morgan Stanley has a price target of $20 on the stock.
The third ASX stock exposed to US infrastructure is Orica Ltd (ASX: ORI) as the company supplies to aggregate producers.
"Within North America, the quarry and construction (Q&C) end market represented 18% of ORI's revenues in FY17. This equates to ~5% of group revenues," said Morgan Stanley, who has put a $20.70 price target on the stock.
While Orica's peer Incitec Pivot Ltd (ASX: IPL) is even more exposed to the potential boom given that Q&C accounts for about 11% of Incitec's total revenue, the stock is not as attractively priced and Morgan Stanley has an "equal weight" rating on the stock.
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