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July 11, 2013 2:40 pm
Stop-start recoveries are bad enough. Recoveries that stop before they even start are worse. That seems to be the depressing state of global corporate capital expenditure. Even though companies are sitting on an estimated $4tn of cash, global capex – which grew at double-digit rates in the mid-2000s and stalled after the financial crisis – looks set to fall in real terms this year, according to Standard & Poor’s. Indeed, a modest 1.5 per cent capex slowdown in 2013 could be followed by a 5 per cent decline in 2014.
It is hard to dismiss these estimates as random sampling. The S&P survey published this week draws on guidance from the top 2,000 corporate spenders globally. Some familiar factors partly explain the gloomy trend. Energy and mining-related investment had been a big driver in the recent past, accounting for almost two-thirds of the growth in global capex since 2003. Now that the commodity “supercycle” has ended, this is falling dramatically. In 2012, materials related capex was more than 40 per cent of the total. Now, S&P reckons, this will decline by 4 per cent, year on year, in 2013 and by another 14 per cent in 2014. Latin America, Australia and mainland China all look weak.
But that is not the whole story. The utilities sector saw capex grow in 2012, but it appears to be heading for a decline in 2013. Other faltering sectors include consumer staples, retailing, information technology and telecoms. So, assuming that the prognosis is correct, what should investors be doing?
For a start, they need to shop very selectively in those sectors that have already re-rated in expectation of general economic recovery. These include the capital goods sector generally – trading on a forward price/earnings ratio of 15 to 16 times in Europe and the US – and in some more specialised areas, such as telecoms equipment. Perhaps they might also want to join the calls for more public infrastructure spending, state coffers allowing. Anything that takes up the capex slack could be very welcome in the next few years.
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