Infrastructure shows resilience in face of tariff-induced volatility

Yasmine Raso

Senior Journalist, Financial Newswire

5 June 2025

Recent market performance has indicated a swing towards listed infrastructure and away from equities amid ongoing volatility and tariff uncertainty, according to commentary from ClearBridge Investments.

Portfolio Manager Shane Hurst said listed infrastructure has shown its resilience despite the Trump administration’s various tariff measures and reversals, as the S&P Global Infrastructure Index was up 8 per cent in the year to date through April compared to 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 said.

“The outlook for utilities remains constructive and largely insulated from tariffs. Be they electric, gas or water utilities, these businesses predominantly service local catchments and do not have direct exposure to international 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 noted that electric and gas utilities are also benefitting from strong artificial intelligence (AI) and data centre growth in the US.

“There is increasing recognition that gas will continue to play an important role in providing stable baseload generation for multiple decades to come, particularly as AI data centres are rolled out and call for more power. Gas pipeline companies such as TC Energy have also been expanding 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 also highlighted the impact of tariffs on freight activity, especially as 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 said.

“An early trade deal between China and the U.S. is potentially a strong positive catalyst for the sector, particularly given how beaten up valuations are currently. All else equal, however, higher tariffs than existed prior to April 2 should weigh on trade and rail volumes.

“The European airport inbound market is strongly increasing with bookings in the May to June period more than 7% higher year over year. However, the outlook for the transatlantic route is mixed currently due to an aversion to travel 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 fate of renewables also hangs in the balance as the sector awaits a resolution to the tax credit issue.

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

“But there could also be a scenario where credits are removed altogether, given the administration’s supportive stance for fossil fuel. Yet, either way, we do not expect any meaningful changes to the growth prospects for onshore wind and solar, which continue to be driven 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.”