Just as the wheels on the bull market bandwagon are starting to wobble, a fresh wave of business investments is about to hit the market as non-mining companies appear to be gearing up for their most aggressive expansion in nearly two decades.
Data from the Reserve Bank of Australia (RBA) and reported in the Australian Financial Review shows that companies outside of the resources sector are issuing bonds at the fastest rate since 2000.
Economists believe that this indicates the surge in non-mining investments that bolstered the better-than-expected GDP growth reading this week is set to continue.
Non-resources companies have taken $25 billion from bond investors in 2017, or 2.5 times more than resources companies.
While some of the cash from the bond issues will be used to pay down loans and borrowings, most of it will probably be used to fund business expansion as the amount of debt sitting on corporate balance sheets is relatively low.
Investors should view this positively because companies will only borrow cash (from the bond market or banks) if they anticipate a pick up in economic growth.
Who wants to pay for debt just to have the cash lying around?
Companies offering professional services such as Downer EDI Limited (ASX: DOW) and ALS Ltd (ASX: ALQ) should be well placed to reap the benefits from increased business investments. I believe both stocks are cheap.
Technology-related companies dealing with enterprise customers should also be direct beneficiaries of this trend. This includes data centre operator Nextdc Ltd (ASX: NXT) and machine learning company Appen Ltd (ASX: APX).
Our struggling medical facilities operators could also see better days in the second half of this calendar year too as the RBA data shows the healthcare sector is partaking in the bond binge.
Shareholders in Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) and Sonic Healthcare Limited (ASX: SHL) will certainly be hoping for that.
But not all sectors of the market are well placed to outperform. I would avoid most of the consumer-facing stocks and the banks as I don't see these stocks benefiting much from the pick up in business investments.
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