Companies are borrowing big as they gear up to chase the earning upgrade cycle, according to data from Australia's biggest bank.
Commonwealth Bank of Australia (ASX: CBA) reported a 21% surge in equipment and machinery financing in May compared to the same time last year.
Government incentives and the resurging economy is prompting companies to increase their capex, and several ASX shares could get a nice earnings boost from this trend.
Companies investing to chase higher profits
We have seen more companies issue earnings upgrades than downgrades recently. The RBA's forecast 4.75% growth for the Australian this calendar year is fuelling the upcycle.
Australian companies are buying more equipment and expanding their operations to keep pace with demand.
The federal government's tax incentives for businesses to invest is providing an important second tailwind too.
Sectors benefiting from capex boom
This puts a number of sectors in a sweet spot to reap the benefits, according Commonwealth Bank.
"The construction industry in particular, has benefited from multiple government stimulus packages, including record investments in public infrastructure projects and the Homebuilder grant," said CBA's Executive General Manager Business Lending, Clare Morgan.
"We're also seeing strong demand for vehicle financing and machinery, particularly in the food manufacturing and agriculture sectors."
ASX shares best placed to profit from increase spending
This explains why construction materials shares on the ASX have outperformed this year. The Boral Limited (ASX: BLD) share price and BlueScope Steel Limited (ASX: BSL) share price are but two examples.
The sharp rebound in vehicle sales has also put the Eagers Automotive Ltd (ASX: APE) share price and ARB Corporation Limited (ASX: ARB) share price in the overtaking lane.
Caterpillar equipment dealer Seven Group Holdings Ltd (ASX: SVW) should also be smiling in the current environment.
Morgan noted that demand for agriculture machinery is the highest she's seen in several years.
Bright outlook for these other ASX shares
If agriculture is booming, then other ASX suppliers to the sector should also be well placed to deliver improved results. The Nufarm Ltd (ASX: NUF) share price and Elders Ltd (ASX: ELD) share price are among the more obvious names in this space.
Meanwhile, IT equipment retailers are also making hay while the sun shines. CBA recorded a 43% increase in computers and a 75% increase in laptops financed as people look for ways to stay connected remotely.
But investors in JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN) probably have already caught on to this fun fact.
