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The stock market is on a tear and business confidence is soaring. The big question is whether this will change the way companies allocate capital. For years they have paid out much of their bumper profits in share-buybacks, rather than investing more in the economy. Donald Trump hopes that by cutting taxes on domestic profits and lowering the levy charged when multinationals bring foreign profits home, he can encourage a surge in investment. The reality is more complex than the president-elect is presuming. More than 50% of buybacks and trapped foreign profits are accounted for by asset-light technology, financial and pharmaceutical companies. Either these firms will have to be persuaded to invest more in people and bricks and mortar, or shareholders will have to push them to return their surplus cash and then reinvest it in other sectors. That could mean buybacks actually rise under Mr Trump. (source: The Economist)


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