Where is the capex recovery?

Cheap money has encouraged listed corporates to shift business models away from capital investment to inflating earnings per share via debt-funded stock buybacks. The eventual normalisation of monetary policy will challenge this model, forcing companies to accept either a stock de-rating or a reallocation of resources to real investment. Fortunately, there are signs that the latter is starting to happen. Global industrial production is rising. There is improving demand for capital goods exports, particularly in the US, and capacity utilisation is nearing levels which normally trigger an upswing in investment. We would be long Asia capital goods exporters (Taiwan, Singapore and South Korea) as well as US manufacturing cyclicals.

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