M&A deals, corporate spending to boost equities

Fri Sep 6, 2013 11:12am EDT
 
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By Natsuko Waki

LONDON (Reuters) - Growing M&A activity and increasing investment suggest that firms are finally putting their massive cash piles to work, a trend which is likely to give equity markets another leg-up towards the end of the year.

Deals such as Verizon's $130 billion swoop for the rest of its U.S. wireless business have pushed this year's global M&A volume to $1.56 trillion, up 1 percent from the same period last year, according to Thomson Reuters data.

Combined with an uptick in capital spending by U.S. and Japanese firms, they reflect improving corporate confidence which is encouraging companies to spend some of their dormant cash.

That may help give a fresh impetus to world stocks. After hitting a five-year high in May and recovering from a June sell-off, the MSCI world equity index .MIWD00000PUS has been trading sideways.

"With an improved economy companies get more confident. And their willingness to spend money increases. It's very positive for equity markets," said Gabriel Bartholdi, strategist at Swiss private bank J. Safra Sarasin in Zurich.

"When companies start to reinvest it shows their confidence for growth. It shows demand is coming back, which will boost earnings."

Since the crisis, corporates have deleveraged and built up a huge savings pile. Companies worldwide now hold $6.7 trillion of cash and equivalents on their balance sheets, more than double the amount a decade ago, according to Thomson Reuters data.

But there are signs companies are starting to spend some of the savings to grow their businesses via acquisitions and also capital investment.   Continued...