Today’s Lex column has a most timely article on the subject of Capital Spending… which has become relatively subdued in recent years as the great dividend and share buyback wave has unfolded.
The numbers are really striking: in 2001 & 2002, corporate cash flow or EBITDA of the top global companies (UBS World Database of 599 quoted non financial companies) was a shade under $1,500 bn, or $1.5 trillion. In 2006, we’re up to around $2.3-2.4tn. The use of these cash flows is revealing however. Capex has moved up from around $750bn to $900bn, while share buybacks & dividends have moved up much more sharply in relative terms. Until the markets are confident in the overall direction of rates around the world, and especially US rates, equities are liable to remain similarly muted, or at least hesitant. But this enormous cash flow provides a significant measure of support and downside protection. Check this recent BW video on corporate capital spending.
