In the face of political and economic volatility, infrastructure investments remain grounded in a solid foundation, offering an ongoing attractive return proposition for investors, said Sarah Shaw, global portfolio manager and chief investment officer at 4D Infrastructure.
In an analysis on Friday, Shaw noted that 2025 has already highlighted moderating growth, inflation and rate outlooks, with Trump 2.0 emerging as one of the key “wildcards” for markets.
“For the US, while Trump’s core policies are pro-growth, there is now a greater degree of uncertainty, bigger downside risk and a wider range of possible economic outcomes,” she said.
Even though Trump’s most aggressive campaign policies – such as tariffs, taxes, immigration and deregulation – are well-known, the past week has shown that the extent of their implementation and the timing remain largely uncertain.
“Medium term, these initiatives could see a scenario of higher nominal US growth, elevated inflation and favourable domestic drivers for corporate earnings, but tempered by the potential downside risks from global trade tensions and geopolitical instability,” Shaw said.
“These headline tariffs, if implemented as suggested, could have a stagflationary impact on the US economy, leading to lower growth and higher inflation at the same time.”
But 4D infrastructure remains optimistic about the long-term fundamentals underpinning companies in this sector, including growth dynamics such as developed market replacement spending, population growth, the rise of the middle class in developing economies, the clean energy transition and proliferation of technology.
According to Shaw, certain regions are offering greater relative value than others as market and economic trends continue to diverge.
“With the risk and opportunity of Trump incorporated into forecasts, we start 2025 overweight Europe and emerging markets with selective positioning in the US awaiting greater clarity,” the portfolio manager said.
“Overall, infrastructure remains an attractive asset class for investors, given its unique characteristics such as inflation pass-through, resilient earnings and exposure to long-term growth.”
Shaw added that sectors and companies driven ahead of fundamental value by sentiment or “blue sky” expectations should be approached with caution, with 4D Infrastructure limiting exposure to those involved in political machinations, such as US offshore wind projects.
Meanwhile, companies and sectors that were oversold last year, such as Brazil, parts of China and European assets, are showing increasing conviction.
“European and UK utility investment plans look particularly attractive as they are supported by strong sector growth thematics. European user pays also continue to offer value. While volume growth is mitigating, it remains solid, and the strong cash generation and growing shareholder returns are attractive in the current muted economic environment,” Shaw said.
“We also remain selective in our exposure to China, capitalising on those names that can benefit from any stimulus as well as a slowly recovering sentiment.”
Turning to Latin America, she warned that Mexico remains at risk of Trump 2.0 and, as a result, 4D Infrastructure is focusing on companies with low exposure to tariffs, those that can capitalise on a weakening currency and those not on the radar of the new Mexican government.
“Elsewhere around the globe we continue to monitor geopolitical risk and opportunity, the economic outlook as well as capitalise on long-term, structural growth thematics that underpin the infrastructure investment story,” Shaw said.
Infrastructure ‘renaissance’ at the centre of structural tailwinds
Similarly, Madeline Ruid, a thematic research analyst at Global X, identified six “structural forces” driving new growth opportunities across various infrastructure assets, including climate change, electrification of power and transport, the rise of disruptive technologies, global fragmentation, ageing infrastructure and shifting demographics.
“Particularly here in the United States, but also globally, we do feel like we’re at the beginning of an infrastructure renaissance,” Ruid said on a webcast.
According to the fund manager, infrastructure development remains a global priority, with ageing assets presenting significant challenges. In the US, nearly half of all power grid assets are over two decades old, and one in three bridges requires major repairs or replacement.
“Ageing infrastructure assets is another structural tailwind that’s facing many countries … quite a few regions or countries have over a third, to even a half, of their power grid assets over the age of 20 years old. So we’re starting to see a lot of grids around the world become increasingly outdated, right as we’re starting to really see the need for a ramp-up in electricity generation,” Ruid said.
In many parts of the world, shifting demographics towards larger and increasingly urban populations will also require a significant buildout of infrastructure assets.
However, Ruid pointed out that some of these trends are also informing one another, cementing them as ongoing opportunities throughout the infrastructure development value chain.
“We have seen an increase in the economic losses that are attributed to climate and weather extremes, right? In the 2010s, losses attributed to climate and weather reached around US$1.5 trillion, and the 2020s could see an even higher economic toll from these events,” she said.
“And that really does tie into the [electrification] trend, because where infrastructure comes in, we’ll have to rebuild areas hit heavily by extreme weather events, but it also plays a role in climate change adaptation and mitigation. With the decarbonisation efforts throughout the power and transport industries, it likely will require pretty significant grid investments.”
China and the United States stand out in terms of the investment needed for their power grids, Ruid said. However, even Australia will likely require billions in investment to stay on track with its decarbonisation efforts.
