Monday, 6 June 2005

Mixed signals on capital spending but markets positive

Lack of capital spending in much of the world economy has held back economic growth. South Korea appears to be no exception.

Corporate spending at pre-'97 crisis level
Corporate capital spending in the first quarter stood at a pre-1997 financial crisis level, the Bank of Korea said yesterday, casting further doubt about a sustained economic recovery.

The expenditures totaled 18.3 trillion won ($18.25 billion) in the January-March period. It was at the same level eight years ago, months before the Asian financial crisis engulfed Korea. Since then Korean companies have tightened spending and placed production in China and other Asian nations.


Some companies have amassed record-high cash reserves but are still reluctant to make a fresh investment simply because they have failed to find new investment opportunities in the weak domestic business environment...

Things may be improving in Japan, though.

Japan's 1st-Qtr Capital Spending Growth Accelerated
Japan's capital spending growth accelerated in the three months ended March 31, signaling that corporate investment is supporting a recovery in the world's second-biggest economy.

Capital spending, including investment in software, rose 7.4 percent from a year earlier, the Ministry of Finance said in a report in Tokyo today. That compares with growth of 3.5 percent in the previous three months. Excluding software, spending rose 6.9 percent in the first quarter...

Like other indicators, it looks like capital spending is sending mixed signals.

Investors seem to have largely chosen to look at the signals positively of late. Over the past month or so, equities have gained. As have bonds. "Sell in May and be dismayed" is how I put it.

However, as this story says, the summer has barely begun, and tightening money supply amid an uncertain economic outlook may yet hit stock markets, especially in Asia.

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