Bond issuance by investment-grade-rated American companies jumped to a record $1.7trn in 2020, up from $1.1trn in 2019, according to S&P Global Market Intelligence, a research outfit.
Throw in more than $230bn in US corporate equity issuance in the 12 months to April, according to Yardeni Research, and it is no surprise to see an increase in cash held by non-financial firms in the S&P 500 index to almost $1.5 trillion from about $900bn in 2019, according to Bloomberg. And this cash is starting to flow to the right places, according to Economist analysis in its end-May issue.
“Forecasters reckon that overall real investment worldwide will soon be a fifth higher than it was before the pandemic.” The US’s business investment is rising at an annual rate of 15%, while analysts at investment bank Morgan Stanley predicted a “red-hot capex cycle” with global capital expenditure soaring to 121% of pre-recession levels by the end of 2022 (see chart 1).
By 2022 companies in the S&P 500 are forecast to be spending over a tenth more on factories, technology, research and development (R&D) and intangibles, led by the technology firms that accounted for a third of R&D last year, according to the Economist.
Apple will invest $430bn in the US over a five-year period, an upgrade of 20% on previous plans; Taiwan’s TSMC, the world’s largest semiconductor-maker, recently announced that it would invest $100bn over the next three years in manufacturing; and analysts said Samsung’s capex would rise by 13% this year, having gone up by 45% in 2020.
This is to tap expected pent-up consumer demand.
In America real disposable income per person is 27% higher than it was in February 2020.
As a result, high-street retailers, restaurants and consultancies are also investing in innovation. Not everyone, however, is boosting capex. The Economist’s analysis suggests that about half of the companies, such as oil and gas groups, airlines, miners and industrials, in the S&P 500 are not expected to invest more in 2021 than they did in 2019.
But below the surface and it is possible to see more seismic shifts in where these innovation budgets are being spent. Oil and gas groups might be trimming their collective capex budgets by about 10% this year but they are looking to corporate venturing to make more impact.
As one US-based, global head said: “We received a bit more budget to really do some ‘wildcats’ so that we are not just helping [X] to deliver its new strategy but helping inform its future strategy as well. All really great stuff.”
As the Economist recognised: “Investment in new technologies and business practices is the secret sauce behind higher living standards. Weak capital spending contributed to the rich world’s sluggish productivity and growth in the 2010s, and to the gnawing sense that capitalism was misfiring.”
Now, while the 2020s is seen as the decade whether we can avert irreversible damage to the climate, this generational challenge is coinciding with unprecedented sums of money available and a new spirit of belief.
Through responsible innovation meeting enough capital, we can deliver on the potential to make the world a better place.
This is a draft of a speech planned for next month’s GCV Powerlist awards and inaugural meeting of Global Innovation Venturing chaired by Scott Sandell in Monterey, California. Feedback most welcome to jmawson@mawsonia.com
