Global business investment set to reach record growth this year – Refinitiv Data
June 23 (Reuters) – Global companies are expected to step up expansion plans this year, having stalled in recent years as economies recover from the pandemic and businesses begin to post profits and losses. higher cash flow.
According to an analysis of Refinitiv data for 4,100 global non-financial companies with a market value of at least $ 1 billion, estimates show their cumulative capital spending is expected to increase by 10% this year, the highest in a decade. decade, before slowing down in 2022.
Analysts expect lower borrowing costs, government infrastructure spending and the global shift to green energy to boost business investment this year.
“Business investment is picking up this year, given the strong rebound in corporate profitability, where profits have tended to dominate investment fairly regularly,” said Mislav Matejka, head of global and European equity strategy at JP Morgan, in a note.
“In addition, bank lending standards continue to improve, which facilitates investment decisions,” he said.
Reuters analysis showed that companies’ combined free cash flow reached $ 331.96 billion in the first quarter of this year, a ten-year high.
In recent years, global companies have preferred to use their cash to buy back stocks and repay debts over investing in investments due to the uncertainty surrounding Sino-U.S. Trade tensions and the COVID-19 crisis. .
However, Anik Sen, global head of equities for New York-based PineBridge Investments, said companies would tend to spend more on capital spending this year.
“Historically, investments have not been rewarded with a higher share price due to the long paybacks,” he said.
“(But) the nature of today’s capital expenditures, like automation, digitization, move to the cloud, has dramatically shorter payback periods with a high internal rate of return that translates into higher medium-term cash flow expectations. “
The analysis showed that European companies are expected to see a 13% increase in their investments this year, compared to 11% for US companies and 9.7% for Asia-Pacific.
By industry, tech companies are expected to increase their investment by 17.4%, while consumer discretionary and utilities companies are expected to experience increases of 17.3% and 13.8%, respectively.
Intel (INTC.O) announced earlier this year that it would spend $ 20 billion to expand its advanced chip manufacturing capacity, while Sony Group (6758.T) said it would spend around $ 18 billion over the next three years in strategic investments. Read more
The analysis showed that developing markets could lag behind capital spending growth this year as they are still struggling with vaccines and have higher levels of corporate debt.
Data showed that companies in emerging markets are expected to post investment growth of just 8% this year, well below that of developed economies such as the United States and Europe.
“Very clearly, investment in the emerging world will not grow as fast as there will be credit constraints, especially when the Fed starts to shrink,” said Alicia Garcia Herrero, chief Asia economist. Pacific at Natixis.
Analysts also said companies will allocate more money to renewable energy projects as they face pressure from governments and investors to become carbon neutral in the years to come.
“Businesses are under the scrutiny of investors to show progress on their greenhouse gas intensity,” said the senator from PineBridge. “Asset managers, in turn, are held accountable by asset owners to engage with companies on ESG issues.”
Reporting by Patturaja Murugaboopathy and Gaurav Dogra; Editing by Vidya Ranganathan and Andrea Ricci
Our Standards: The Thomson Reuters Trust Principles.