UPDATE 1-REUTERS SUMMIT-Equipment spending to help stocks in 2014

Simon Jessop and Alistair Smout
Wednesday, 20 Nov 2013 | 10:00 AM ET

* Spend 4-5 years overdue - Deutsche Asset & Wealth Mgmt

* To help U.S., European stocks post double-digit gains

* Needed to drive future revenues after weak Q3 results

* Vodafone, Samsung Electronics among firms to flag uplift

(Adds details throughout)

LONDON, Nov 20 (Reuters) - Industrial and technology firms are among those expected to ramp up spending on buildings, IT systems and other equipment in 2014 after years of underinvestment, sending stock markets higher.

Capital expenditure, or capex, will help drive double-digit gains in U.S. and European stocks next year, according to asset managers in charge of more than $2 trillion who outlined their views at a Reuters Global Investment Outlook Summit.

Capex is important to companies because it can bump up future profits through efficiency and increased capacity. It also helps profits and share prices at firms producing the equipment.

The financial and euro zone debt crises and economic slumps that followed put many companies off making new investments. But Vodafone and South Korean firm Samsung Electronics Co Ltd are among those expected to spend.

"There is a need for reinvestment in Europe. The capex level (age of fixed assets) in Europe is at 13-14 years of age, on average," said Arnaud de Servigny, CIO Wealth Management at Deutsche Asset & Wealth Management, which manages nearly $1.3 trillion worldwide.

That compared with an average age before replacement before the financial crisis of around 9 years, he said. Capex is at a 22-year low relative to sales, Thomson Reuters Datastream data showed.

Companies have taken advantage of low borrowing costs to issue debt but, uncertain about the outlook for growth, have used the money to refinance existing debt or to buy back shares or pay dividends rather than making new investments.

As bosses become more confident about the economic outlook, this trend is expected to change.

For De Servigny, the scale of the turnaround in the U.S. corporate psyche could be pronounced, with Deutsche flagging a jump in business fixed investment there from 1.5 percent this year to 5.3 percent in 2014 as the economy improves.

In Europe, European Central Bank lending data shows fixed asset spending up for a second month in October to its best level since early 2012, which "bodes well for a revival in the capex cycle", a Deutsche Bank note said.

Philip Saunders, head of multi-asset investment at Investec Asset Management, which manages $105 billion in assets, said a large chunk of corporate cash would go to buy future growth through acquisitions, but that capex spending would also rise.

Vodafone, for example, has said it planned to spend 7 billion pounds on upgrading its infrastructure, particularly the speed and reach of its network, while Samsung said it would invest more in new technology.


While he said U.S. companies would lead the way, buying stocks of large international companies based in Europe and Asia but with potential to expand, particularly in the United States, could be one way to play the trend.

"Companies have to deploy capital and you can do that in one of two ways. We've been through the phase where you buy back shares, you raise dividends. I think the companies that do well are going to be those who deploy capital more sensibly."

Credit Suisse research found only 2 percent of European firms see buybacks as a key priority moving forward.

Describing many of the companies that continue to buy back shares or raise dividends as "value traps", Saunders instead flagged "quality cyclical companies" as potential capex outperformers, for example life insurers and industrials.

That view was also shared by UBS in recent research, specifically the capital goods industrial sub-sector that, along with financials, tech and miners, was best placed to ride the trend, helped by improved business confidence, thawing lending conditions and the potential for firms to take on debt.

The need to buoy future revenues has been thrown into sharp relief by the European third-quarter earnings season which, as it draws to a close, shows nearly two thirds of STOXX Europe 600 firms missed analyst revenue expectations.

Industrials were among the worst performers, with nearly three-quarters missing forecasts, Thomson Reuters StarMine data showed.

Andrew Wilson, managing director Global Fixed Income, Currency & Liquidity at Goldman Sachs Asset Management, which manages around $800 billion, said the capex pick-up was overdue and would likely kick in by the second half of 2014.

"Given where margins are, where profitability has got to, we think the only way now of continuing to give growing profitability is to start to increase revenues, and you've got to start investing in order to do that." ($1 = 0.7394 euros) ($1 = 0.6210 British pounds)

Follow Reuters Summits on Twitter zReuterstSummits

(For more summit stories, see )

(Additional reporting by Josie Cox at IFR Markets, Jemima Kelly, Julia Fioretti; Editing by Anna Willard)

  Price   Change %Change