Wait and see mode
According to Reuters, “Capital expenditure (capex) at 2,137 Asian companies is likely to slip an average 4 percent this year.” The metric stood at 8% last year. Corporate spending is a key component of economic growth. Several factors seem to be working against business capex in the current scenario.
First, global economic growth is widely expected to fall this year. As economic growth stalls, businesses have more propensity to save cash rather than splurge on capex. Second, trade war concerns have dented business sentiment. According to Reuters, “Confidence among Asian companies held near three-year lows in the first quarter as a U.S.-China trade dispute dragged on.” With global trade order facing several uncertainties, firms have been reluctant to part with their cash.
To be sure, US-China trade relations aren’t the only uncertainty for markets. Uncertainties surrounding Brexit have taken a toll on business sentiment in Europe also. The gradual rise in US interest rates has also made borrowing expensive for some companies. However, central banks elsewhere have been loosening their monetary policies as growth stalls. Read Economic Slowdown Deepens, Central Banks Take Charge for more information.
So is Trump’s approach to foreign policy in line with Berkshire Hathaway’s (BRK-B) outlook for the US market (SPY)? Read on to the next part of this series.