You are here: Home » Finance » News » Others
Business Standard

Apple, Samsung open their wallets, boosting world's economy

Developing economies are leading the next wave of CapEx as companies continue to spend over growth in demand

Enda Curran & Vivianne Rodrigues | Bloomberg  |  New York 

Apple, iPhone X, iPhones

Companies across the developing world are stepping up investment to meet rising demand from industrial economies in what’s shaping up as a further spur to already buoyant global growth.

Big industrial economies including the US and Japan led the recent recovery in (CapEx). Now, such investment is broadening to emerging countries with Morgan Stanley’s tracker of economies not including China now at its highest level since 2011.

"It is going from synchronized growth to synchronized CapEx," said Chetan Ahya, co-head of global economics at Morgan Stanley in Hong Kong.

Executives are racing to keep up with demand by pouring money into research and new plants. While that spending gives another sugar hit to the global economy, the effects should be longer lasting too as productivity is boosted and paychecks fattened.

Much of the CapEx recovery can be chalked up to the booming production of smartphones and electric vehicles. A wave of upgrades by the likes of Inc. and Electronics Co. is spurring demand in the semiconductor industry, where global CapEx is estimated to grow nearly 30 percent in the next 12 months, according to Bloomberg Intelligence. That’s a boon for Asia’s tech-focused exporters like Japan, South Korea and Taiwan.  

Win Semiconductors in Taiwan, which makes laser components for the iPhone X’s Face ID function, plans to increase CapEx to NT$7 billion ($239 million) this year from NT$4 billion in 2017. Austria based AMS AG, which produces optical sensors for mobile phones and supplies both and Samsung, saw its CapEx surge to 582 million euro ($714 million) in 2017 from 91.7 million euro a year earlier, mostly due to expansion in Singapore, the company said in a statement. It estimates additional spending of $600 million this year.

Rising commodity prices, higher fiscal spending and improving domestic demand are boosting corporate spending elsewhere in Asia too. Indonesia, the Philippines and India will be among beneficiaries in both the short and medium term, according to Trinh Nguyen, a senior economist at Natixis SA in Hong Kong. 

Around 69 percent of Asian companies increased CapEx last year, compared to 48 percent in 2016, according to Joao Cesar, a senior investment analyst at Mirae Asset Global Investments.

Auto Investment

in Europe, Japan, and China are expected to raise by 40 percent, 23 percent and 21 percent in the next 12 months, according to Bloomberg Intelligence. Volkswagen AG will spend more than 34 billion euros over the next five years to develop automotive technology for an era of electric robot-taxis.

To be sure, it’s not all blue skies. Tensions between the US and key trading partners continue to linger and not all parts of the globe are sharing the CapEx recovery. In Latin America, a region still reeling from a recession in Brazil and volatility in Mexico amidst protracted negotiations to revamp the North America Free Trade Agreement, investment has yet to show a strong rebound.

by Latin America’s 20 largest companies dropped 21 percent to $51.8 billion in 2016, when compared to the previous year, according to Bloomberg data. Brazil’s Petrobras SA alone - traditionally the region’s largest corporate spender - cut expenditures by $7.5 billion to $14.23 billion that year. Preliminary figures for early 2017 indicated that the broad slowdown continued.

“Investment in the core Latin America economies has not been a pretty picture," said Michael Moran, who heads America's economic research at Standard Chartered Plc in New York.

Still, the start of 2018 has been more promising. Companies such as Mexico’s telecommunications giant America Movil SAB announced last week it plans $8 billion in capital expenditures this year, a $500 million increase from 2017. Moran said the combination of higher commodity prices and lower domestic borrowing costs in some of the region’s largest economies is bound to boost corporate investment.

“Pent-up demand around the world is not going to be exhausted soon," said Jay Bryson, global economist at Wells Fargo Securities LLC, in Charlotte, North Carolina. “Even as global interest rates start to rise, they will not go up fast enough this year to choke up investment. This rebound in CapEx is fairly sustained."

First Published: Tue, February 27 2018. 22:32 IST