Miss­ing piece of global growth jig­saw may be fall­ing into place

The Star Malaysia - StarBiz - - Foreign News -

HONG KONG: A miss­ing piece in the global growth jig­saw ap­pears to be fall­ing into place.

Spurred by higher prof­its and buoy­ant stock mar­kets, some of the world’s best known com­pa­nies from Ama­zon.com Inc to Volk­swa­gen AG are ramp­ing up spend­ing on new plants and equip­ment af­ter years of cau­tion.

For an in­ter­na­tional eco­nomic ex­pan­sion al­ready gath­er­ing speed, that could prove a boon.

The think­ing is that cap­i­tal in­vest­ment, or capex, will stoke not just de­mand, but ul­ti­mately higher wages and in­fla­tion.

That’s a pos­i­tive for cen­tral banks and gov­ern­ments yearn­ing to see prof­its trickle into work­ers’ pock­ets. Em­ploy­ers have been re­luc­tant to spend even amid an eco­nomic up­swing span­ning 75% of the globe.

“Capex is def­i­nitely pick­ing up,” said Chetan Ahya, co-head of global eco­nomics at Mor­gan Stan­ley in Hong Kong. “This is a very im­por­tant part of the global growth story.”

A new tracker of busi­ness spend­ing by econ­o­mists at JPMor­gan Chase & Co un­der­pins such con­fi­dence. It points to capex growth run­ning at a pace of around 8%.

While the pic­ture varies from coun­try to coun­try, there’s enough ev­i­dence that spend­ing is im­prov­ing.

US orders for busi­ness in­vest­ment, for ex­am­ple, in­creased by more than ex­pected in Septem­ber and the econ­omy’s 3% spurt of the third quar­ter was aided by a 1.5% climb in busi­ness fixed in­vest­ment.

“The pick-up in busi­ness in­vest­ment is like a foun­tain of youth for an ag­ing re­cov­ery,” said Jim Paulsen, chief in­vest­ment strate­gist at Leuthold Group LLC in Min­neapo­lis. “US com­pa­nies have an in­cred­i­ble amount of dry pow­der right now.”

For in­vestors, the “green shoots” of greater busi­ness spend­ing should prompt a bet­ter per­for­mance from US in­dus­trial stocks and higher yields on 10-year Trea­sury notes, an­a­lysts at Pavil­ion Global Mar­kets told clients in a re­cent re­port.

Ama­zon is spread­ing its in­ter­na­tional reach with op­er­a­tions in In­dia, Aus­tralia and Latin Amer­ica. It also has in­vited US states and lo­cal gov­ern­ments to sub­mit pro­pos­als for a new head­quar­ters that will cost US$5bil and cre­ate 50,000 jobs over the next 15 to 17 years.

Cater­pil­lar Inc, the largest maker of con­struc­tion and min­ing equip­ment, raised its sales and earn­ings fore­casts, cit­ing in­creased de­mand across mar­kets. “We are see­ing broad-based sales in­creases across a num­ber of in­dus­tries in all re­gions,” chief ex­ec­u­tive of­fi­cer James Um­pleby said on a con­fer­ence call.

It’s not just the big names. The Pavil­ion an­a­lysts cal­cu­late cap­i­tal spend­ing by smaller US com­pa­nies in the Rus­sell 2000 in­dex rose 33% this year through Wed­nes­day.

“Small busi­ness own­ers are def­i­nitely spend­ing more on equip­ment,” said Mark Vit­ner, se­nior econ­o­mist at Wells Fargo Se­cu­ri­ties LLC in Char­lotte, North Carolina.

“This marks a real change and partly re­flects the im­proved reg­u­la­tory en­vi­ron­ment, which is see­ing less new reg­u­la­tion com­ing on line.”

In Ja­pan, core machin­ery orders, which are a lead­ing in­di­ca­tor for fu­ture capex, rose in both July and Au­gust from a month ear­lier, af­ter drop­ping in April through June.

Auto gi­ant Mit­subishi Mo­tor Corp plans to boost an­nual re­search ex­penses by 50% to 133 bil­lion yen (US$1.2bil) in three years, while oth­ers in­clud­ing Toshiba Corp Toy­ota Mo­tor Corp are also spend­ing.

In the euro area, a Septem­ber sur­vey of 600 com­pa­nies by UBS Group AG found capex set to jump for the first time in two years. Volk­swa­gen is in­vest­ing 1.4 bil­lion eu­ros (US$1.6bil) in new tech­nol­ogy for com­mer­cial ve­hi­cles in­clud­ing elec­tric drive trains and au­ton­o­mous sys­tems.

Mean­time, China’s in­dus­trial prof­its jumped the most since 2011, un­der­scor­ing the re­silience of the world’s se­cond-big­gest econ­omy. Elec­tric ve­hi­cles are tipped to drive an in­vest­ment surge.

“There are signs of a syn­chro­nised re­cov­ery of capex spend­ing in ma­jor economies, which may pro­vide a fur­ther boost to global trade,” China In­ter­na­tional Cap­i­tal Corp chief econ­o­mist Hong Liang wrote in a note.

Tesla Inc is in talks with the Shang­hai govern­ment about set­ting up a fac­tory, ac­cord­ing to a Com­merce Min­istry spokesman. And China’s plan to build a new silk road trad­ing route, known as the Belt and Road Ini­tia­tive, is ex­pected to cre­ate more than US$1 tril­lion of in­vest­ment on rail, high­ways and ports link­ing Europe and Asia. — Bloomberg and

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