A gap is set to open up between Japan and the rest of Asia in terms of capital expenditure over the next few years, according to a survey by Standard & Poor's.
While Abenomics has revitalised Japanese industry, the rest of Asia – particularly the energy and basic materials sectors – looks set for a lengthy period of retrenchment.
The survey forecasts that capex for non-financial groups in Asia ex Japan will drop by 3% this year, 6% in 2015 and a further 5% in 2016. In contrast, Japanese companies will see a 2% improvement this year, a 3% fall in 2015 and flat growth in 2016.
“A huge part of this story is the commodities cycle; we are two years into a downturn for the metals and mining industries,” Paul Watters, co-author of the survey, told FinanceAsia.
The Global Corporate Capital Expenditure Survey of the world’s top 2,000 spenders, lists the top 20 non-financial Asian companies for capex in 2013, with energy and resources companies making up seven of the top 10.
However, a drop-off in spending in the energy and materials sectors will drag down overall capex in Asia ex-Japan in the next few years.
The expected plunge coincides with the end of the decade-long commodities boom, which was categorised by huge levels of spending, numerous mergers and acquisitions, and fat resource-company profits.
Excess supply and plunging commodity prices have since decimated the industry, hitting oil and gas groups, miners and steelmakers.
“Weaker prices translate into weaker cashflow and so cashflow has not been sufficient to fund capex, so companies have and will attempt to restore greater financial discipline before committing to further growth investment,” Watters said.
He added that lower corporate capex was a symptom of the region's economic fragility, with companies in certain heavyweight sectors lacking the confidence currently to grow their capital investment programmes.
Among the factors casting a pall over the wider region is an economic slowdown in China, the world’s largest importer of many commodities and an increasingly important consumer of finished goods. The Organisation for Economic Co-operation and Development in May forecast Chinese growth of 7.4% in 2014, down from its 8.2% November forecast. Nonetheless, the International Monetary Fund in April said that Chinese commodities demand had not peaked and would merely shift emphasis.
S&P’s survey estimates that capex from Chinese and Hong Kong companies will grow by only 1% this year, and then see a 3% decline in 2015 and a drop of more than 5% in 2016.
Some of China’s biggest companies are from the oil and gas sector, including PetroChina, the world’s biggest capital spender in 2013, Sinopec and Cnooc – all three were in the top 10 in terms of capex for Asia ex-Japan last year.
PetroChina said last month it expected its capex to fall by 7% this year, following a 9.6% drop in 2013, while Sinopec last month said it would cut capex by 4.2% this year.
But in Japan the picture is different. After years of stagnant growth, Abenomics turned the economy on its head and revitalised some stale industries.
Capex growth for non-financials dropped 15% in 2010 but rose 15% the following year. The data has steadied since then but, compared with the rest of Asia, the future looks decidedly more rosy.
The country’s relative paucity of mining and resource companies and abundance of technology companies is a compelling factor behind the data.
“Japan is interesting. It is clearly benefiting from government stimulus and this has led to stronger IT and telecoms industries, in particular,” Watters said.
The country’s share of global capex is set to jump from 8.7% in 2013 to 10.2% in 2016, according to the survey.
Japanese companies, for a long time stymied by a flat domestic market, have started to spread their wings and look for overseas assets. Blockbuster deals seen so far include Suntory’s $16 billion purchase of US whisky maker Beam in January.
Meanwhile, Softbank, fresh from its $21.6 billion purchase of the US’s Sprint in 2013, is overseeing a $30 billion to $40 billion deal that would see its US mobile group merge with T-Mobile USA.
Continuing the telecoms theme, NTT DoCoMo said in May it would invest Y1 trillion in mobile phone operators in Asia-Pacific to boost revenue as demand sags domestically.
What can be made of all this is unclear. S&P said that the companies in its global survey hold US$4.5 trillion in cash. What companies do with this cash will be key to the next stage in the post-crisis cycle and help determine the next decade’s winners and losers.
But the rule of the jungle is if you stand still you tend to get eaten. And in Asia at least, it looks like Japanese companies could end up doing more of the eating.