Daily Management Review

Refinitiv Data Shows Decade-High Growth In Capex To Me Made By Global Companies In 2021


Refinitiv Data Shows Decade-High Growth In Capex To Me Made By Global Companies In 2021
After being subdued for the last few years and with companies recovering from the Covid-19 pandemic, it is expected that there would be a surge in their expansion plans of companies this year. Companies are also expected to register higher profits and cash flows which will also prompt greater investments in expansion and capacity building.
It is expected that the capital expenditure this year will grow at 10 per cent this year which would be the highest growth in a decade, according to an analysis of Refinitiv data for 4100 global non-financial firms that have a market value of at least $1 billion. The growth is then expected to slow down in 2022.
Corporate capex is expected this year because of global transitioning to green energy, infrastructure spending by governments and lower costs of borrowing.
"Corporate capex is on an accelerating path this year, given the strong rebound in corporate profitability, where profits have tended to lead capex pretty consistently," Mislav Matejka, head of global and European equity strategy at JP Morgan, said in a note.
"Further, bank lending standards are continuing to improve, which helps capex decisions," he said.
In the first quarter of the current year, the combined free cash flows of companies increased to $331.96 billion which is the highest in a decade, showed analysis by Reuters. 
A tendency towards using the cash piles on share buybacks and repayment of debt instead of investing in capex because of uncertainty over China-United states trade tensions and the Covid-19 crisis was noticed among global companies in the past few years.
However companies would prefer to spend much greater amounts on capex this year, said Anik Sen, global head of equities for PineBridge Investments based in New York. "Historically, capex was not rewarded with a higher share price due to the long payback periods," he said.
"(But) the nature of capex today, such as automation, digitalization, shift to cloud, have significantly shorter payback periods with high internal rate of returns which flow through to higher cashflow expectations in the mid-term."
According to the analysis, a 13 per cent growth in their capex this year is expected for European companies whereas US firms are expected to spend 11 per cent more and Asia Pacific companies will spend about 9.7 per cent more on capex.
In terms of sectors, it is expected that there would be a 17.4 per cent growth in capex spending by tech companies while an increase of 17.3 per cent and 13.8 per cent in capex expenditure growth is set to be seen by consumer discretionary firms and utilities sector firms.
The analysis also showed that there can be comparatively slow growth in capex expenditure in the developing markets this year as the countries are still lagging behind on Covid-19 vaccinations and their corporate debt levels are also higher.
"Very clearly, capex in the emerging world will not grow as fast as there will be credit constraints, the more so when the Fed starts tapering," said Alicia Garcia Herrero, Asia-Pacific chief economist at Natixis.
"Companies are under the scrutiny of investors to show progress on their greenhouse gas intensity," said PineBridge's Sen. "Asset managers, in turn, are being held to account by asset owners to engage with companies on ESG issues."