Corporate spending has been lacklustre since the credit crisis as companies have nervously sat on cash in fear of another economic crisis. Confidence has taken a long time to return and seems to be an untapped source of wealth at a time when there are precious few of those around.
Some say no…
Some managers believe that corporate spending is unlikely to return. Walter Price, manager of the RCM Technology Trust, says that he is not relying on an expansion in corporate spending to support the companies in his portfolio. He believes that the current problems in the US make a significant expansion in corporate spending unlikely. That said, with the move to cloud computing, many technology businesses are not as reliant on the corporate capex cycle as they once were.
However, others see small signs of recovery. Tom Becket, chief investment officer at Psigma, says that recent statistics from the Philadelphia Federal Business Outlook Index show that the spending intentions of US companies are picking up and this is "a vital factor that has been missing from the recovery of the last few years".
Equally, Thomson Reuters data shows that this year’s global M&A volumes are up to $1.56trn, around 1% higher than the same period a year ago. This has been given a substantial boost from the Vodafone/Verizon deal, but it shows a direction of travel. It points out that there has also been an uptick in capital spending by US and Japanese firms.
…plenty say yes
The latest Deloitte CFO survey showed that CFOs see fewer risks in the global economy and greater opportunities for expansion: "Optimism has risen for five consecutive quarters and is close to a three-year high. The defensive strategies of cost cutting and cash accumulation that saw corporates through the global financial crisis are increasingly out of favour.
"The top priority for CFOs now is expansion. CFOs have become more positive on prospects for growth in the developed world and slightly less positive on growth in emerging markets."
Some groups are making this a significant theme. For example, David Griffiths, manager of the Kames UK Equity Absolute Return Fund, says that his conversations with companies have shown that many groups have significantly under-invested in their capital stock. They will need to invest soon or it will start to affect the amount they can produce. That, combined with an improvement in credit conditions across Europe, should boost capital expenditure by corporates.
The signs are still tentative, with the figures boosted by a small number of high profile deals, but increased confidence by CFOs is encouraging. If they finally put their money where their mouths are, it could generate the momentum in stock markets that has been lacking over the summer months and lead to, as Becket puts it, a "Santa rally".
