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INSIDEFDI JACOPO DETTONI LOOKS AT WHY AND WHERE GLOBAL INVESTORS ARE SPENDING ONCE AGAIN


Backto the ‘Triad’ A


t the beginning of the Covid- 19 pandemic, companies put investment plans on hold and


drew downcredit lines to weather the upcoming storm. Back in June, they were sitting on about $2.5tn in cash—the largestamount analysts at Standard&Poor’s had ever seen. And even if they do not have any cash left, they can easily source fresh capital. Central banks are keeping interest rates at historic lows, and yield-hungry investors are writing blank cheques for almost anyone raising funds in themarket. Despite somewarnings, the ‘eve-


rything bubble’ is inflating by the day, with prices going up across the board. The global economy is awash with cash. Cash does not necessarily lead


to investment — in the end, compa- nies chase profits and the macroe- conomic cycle is the ultimate proxy of their expectations. From this per- spective, things start looking prom- ising. The IMF expects the global economy to rebound stronger than initially thought, and grow at the fastest pace since the 1970s, increasing by 6% this year. With these figures in mind, chief finan- cial officers are looking ahead with renewed optimism. Take US car producers, for exam-


ple. They are bumping up capital expenditure (capex) by almost 50% this year, compared with 2020’s, tak- ing it well above pre-pandemic lev- els, Citi Research figures show. Once again it is timefor US companies in hotels, restaurants and leisure busi- nesses to invest, and they are plan- ning to spend 40%more than last year, although in their case capex is still shy of pre-pandemic levels. The cycle out of Covid-19 is well


advanced in the US, with the IMF expecting the country’s gross domes- tic product (GDP) to bounce back to pre-Covid-19 levels this year. China has done even better, as its GDP fully recovered in the second half of 2020. Elsewhere, however, it is awhole dif- ferent ball game. Recovery will be patchy and


bumpy formany, and will ultimately depend on the degree of success of


April/May 2021 www.fDiIntelligence.com 3


local vaccination campaigns. As I write this column, Covid-19 deaths in Brazil are running at a record high of about 4000 per day; in the UK they are nearing the lowtens. Inevitably, the investment cycle


will also followthe outline of this ensuing K-shaped recovery. Investors, particularly foreign inves- tors, will chase opportunities in markets that are springing back to life, while keeping a lowprofile else- where. The protectionist policies around trade and investment that have flourished during the pan- demic add to the mix, and the divide between developed and developing countries is again widening. Those same US companies that


are deploying cash to build a new capex cycle, which traditionally are the world’s biggest source of cross- border investment, seemto have taken a more regional, if not like-to- like, approach to overseas invest- ment. Some seven of 10 FDI projects they have announced since the beginning of the pandemic went to OECD countries, fDi Markets figures show. European investors are behav- ing similarly. Global growth, combined with


lowcost of capital, is indeed shaping a new investment cycle. Hardly, though, foreign investment will sig- nal a new wave of globalisation this time around.More likely, it will strengthen ties withinmajor eco- nomic blocs in North America, Europe and Asia-Pacific. The ‘Triad’ is back, and is here to stay.■


Jacopo Dettoni is the editor of fDi.


RECOVERY WILL BE PATCHYAND BUMPYFOR MANY,ANDWILL ULTIMATELY DEPENDON THEDEGREE OFSUCCESS OFLOCAL VACCINATION CAMPAIGNS


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