Macroscope: A new capex supercycle is on the way

The combination of an energy transition, along with nearshoring, geopolitics, demographics, technology and public investment is driving a global capex cycle, according to Sahil Mahtani, Head of Macro Research, Ninety One.

09 Apr 2024

2 minutes

Sahil Mahtani

In 2013, former US Treasury secretary Larry Summers famously declared that the world’s advanced economies were in a state of secular stagnation, a period of sluggish growth, low interest rates and an absence of inflation. Today, central banks find themselves worrying about the opposite: the prospect of higher-than-target inflation and the need to keep interest rates higher for longer. If these worries remain in the coming years, a key reason will be because the world is in the foothills of a global capital expenditure supercycle.

Our work suggests that transformative thematic macro trends will drive global capex spending up by US$2.5 trillion per year in a base case scenario and US$5 trillion in a high scenario. This translates into a projected 12-24% increase in annual global gross fixed capital formation by 20301.

Since 1945, there have been six significant capex cycles, as defined by periods when capex growth exceeded GDP growth, with the longest stretching across two cycles from the mid-1960s to the late 1970s. Since then, US capex growth has spent as much time below trend GDP growth as above it, as the offshoring of production to Asia led to an investment boom there, especially after China’s 2001 accession. The post-GFC period invited balance sheet consolidation in the US private sector and was not conducive to strong investment growth.

The emerging capex cycle is underpinned by a multitude of structural drivers including the shift towards net zero, efforts to enhance supply chain resilience underpinned by persistent national security concerns, demographics, fast-rising defence spending, and public  infrastructure spending across the developed and developing world.

The move toward a green economy is the largest component of increased infrastructure investment. BloombergNEF forecasts that investment spending will reach between US$2 trillion and US$4.5 trillion per annum, by 20302. Defence spending estimates since the Ukraine war has structurally increased by $300bn to $700bn p.a3. The decline in working age population ratios is leading to a structural labour shortage, which is compelling employers to substitute labour for capital, by several hundred billion dollars per annum. Meanwhile, technological development particularly in AI is fuelling major investments, with AI data centre expenditures projected to rise by US$100 billion per annum by 20274. Public infrastructure plans in the US and elsewhere, the reshoring of supply chains, as well as mining capex for the energy transition, each add their own hundreds of billions to the figures.

What a new capex cycle means for investors

If we are on the verge of capex-driven and resource-intensive cycle in the coming years, that is likely to lead to a different market leadership than the last cycle. Indeed, according to our analysis, stock beneficiaries are likely to be primarily in physical asset intensive areas of industrials, resources, and utilities. These are all sectors that lagged or tracked the market in the post-GFC period. Stock beneficiaries are also spread across geographies, not just concentrated in the US. In other words, the investing playbook for the secular stagnation cycle, which favoured long-duration assets, often in the technology sector, often in the US, will be different for one driven by a capex supercycle.

Moreover, it would influence the broader macroeconomic landscape, potentially spurring higher inflationary impulses and sustained increases in bond yields at cyclical peaks. Our research suggests the structural thematic drivers outlined here are durable, substantial, and are likely to play out over many years. While the impact on productivity may take time to materialise, the changes are palpable and poised to exert a tangible influence.

For further analysis, please visit Ninety One’s ‘A new capex supercycle: driving powerful and transformative growth’ report.

1 Ninety One, A new capex supercycle: driving powerful and transformative growth (2024)
2 BloombergNEF, New Energy Outlook 2022 (2022)
3 The Economist, The cost of the global arms race (2023)
4 Intelligent Data Centres, Bulk Data Centers unveils plan for data centre expansion following unprecedented demand (2024)

Authored by

Sahil Mahtani

Jeannie Dumas

Communications Director (ex-Africa)

Laura Henderson

Communications Manager

Important Information

This communication is provided for general information only should not be construed as advice.

All the information in is believed to be reliable but may be inaccurate or incomplete. The views are those of the contributor at the time of publication and do not necessary reflect those of Ninety One.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.

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