Road to V Shaped Recovery Reflected by Record High Growth in Global CAPEX

Globally economies are on uphill ride to V shaped recovery at a rate that have never been experienced before. According to a survey by S&P Global Ratings, global corporate capital expenditures (CAPEX) to grow by 13.3% this year which would account for the biggest yearly jump since 2007.

According to the survey, capex of 2000 largest non-financial companies globally are expected to spend $3.7 trillion in 2021. However, CAPEX of energy and materials sector to grow by 15% to a record high of $2.8 trillion.

The CAPEX growth is supported by bank’s globally being supportive to companies that are hit hard by the pandemic. According to Reuters, historically companies are known to spend their cash holdings on share buybacks and debt repayment rather than spending on CAPEX.

Due to higher payback periods the reflection of CAPEX did not act as a boosting factor to share prices. However, since the pandemic has a significant shift in how companies operate as well consumers behavior, CAPEX in today’s time is being spent on innovative technologies that happens to reflect higher internal rate of return which could bring in higher cashflow with shorter payback period.

S&P Global Rating’s analysis shows CAPEX of European companies will grow by 17% in 2021, which is the highest since 2006.

Chinese companies lead the way among Asian companies- ex Japan in CAPEX spending during the fiscal year 2020. Industries including utilities, industrials, IT and energy spent the highest in CAPEX.

CAPEX of North American companies to grow by 15% in 2021 which was down by 13% in 2020.

Given market uncertainties with federal asset purchases tapering globally, crackdown in Chinese technology sector and strained global supply chain, rise in global CAPEX by record high rate is expected to could give market boost in optimism and a base to support growth.