Asian equities fell after the world’s biggest mining company warned that a slowdown in the impact of China stimulus may lead to lower iron ore prices.
Energy stocks were hit by the biggest drop in crude oil in more than a year.
The MSCI Asia Pacific Index fell 0.4% as of 3.59pm in Hong Kong on Wednesday as BHP Billiton Ltd led the drop among mining companies.
China Petroleum and Chemical Corp. fell as oil held losses after record US stockpiles raised concerns about a global glut.
China February producer prices surged the most since 2008, while consumer inflation missed estimates.
Iron ore futures in Dalian are headed for the lowest close since 9 February after BHP Billiton’s chief financial officer Peter Beaven said fading stimulus measures in China could bring “much lower” iron ore prices.
‘Animal spirits’ may stoke US capex recovery
A sustained improvement in business confidence can revive capital expenditure (capex) in the US, says Fitch Ratings.
According to the ratings agency, business confidence in the US has seen a “sharp and widespread” improvement in regional Federal Reserve surveys, Purchasing Managers’ indices and other surveys.
If the momentum keeps pace, it can stoke capex recovery in the country, Fitch said in its latest Global Economic Outlook report. “If the US business sector sees a sustained return of ‘animal spirits’ (willingness to take long-term investment risk) this could easily unlock a rapid recovery in capex given the lack of balance sheet headwinds and still highly accommodative credit conditions,” it adds.
Bond issuance remains buoyant
Globally, bonds have been a buoyant source of financing in addition to bank lending, especially since the 2008 financial crisis. In its report, the Institute of International Finance points out that US non-financial corporate entities have tapped large amounts through bonds both in the developed and emerging markets.
But given the state of weak economic activity, funds are hardly used for capex.
Most of them have used it for debt refinancing, share buybacks, mergers and acquisitions, and even dividend payments.
The table shows a high level of “other” categories, mainly including building up cash on the balance sheets. This category accounted for as high as 55% of total funds raised in mature markets and an even higher 85% in emerging markets. This shows that constraints on financing ability can’t be blamed for relatively low capex in recent years.