A new contract for growth
Global capital expenditure by non-financial firms is expected to fall by 1% this year, and by a further 4% in 2016. The latest decline is highly concentrated in the energy and industrial-materials sectors. But that is of only limited comfort; investment in energy and materials has been hugely important in recent years, comprising 39% of all capex in 2014. Falling commodity prices reflect worries about the outlook for the global economy. Those worries help explain not only why interest rates are so low, but also why companies are reluctant to invest. Some think a structural factor may also be at work. Businesses have become too focused on the need to meet short-term profit targets and not enough on long-term returns. They have been encouraged to do so by shareholders, who demand that cash is returned to them in the form of buy-backs and who turn over their portfolios much more quickly than in the past. The average holding period for shares in America and Britain has dropped from six years in 1950 to less than six months today. (VIEW LINK)
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