Here's solid proof that emerging Asia isn’t necessarily ‘under-investing’

Hopefully, “growth pessimism” will just be misplaced.

Amid the question of whether or not Asia is under-investing, an analysis says that “growth pessimism” may be a reason for why this has been raised.

According to a report from HSBC Global Research, expenditures by companies on production facilities have actually slowed. In this, Asia is similar to markets like the US: despite record low funding costs and, in many places, unparalleled profits, firms are often prone to hoarding cash rather than investing it.

Overall, one reason for this may be “growth pessimism” – if firms suspect that demand in the East and the West will not accelerate appreciably, why take the risk and boost capex, said the report.

The trouble with this is that it kicks off a self-feeding cycle: without more investment, growth will not pick up, and with demand disappointing, capital spending languishes.

Here’s more from HSBC Global Research:

What, then, of the issue of under-investment? Tough to say. Our last chart, shows GDP and capex growth in emerging Asia.

Over time, the two series correlate closely. Even in the last few years, facilities spending hasn’t slowed significantly more than what the overall slowdown in economic growth would have implied.

From this perspective, therefore, the region isn’t necessarily “under-investing”.

Still, judging from the generally depressed pace of capex growth, firms don’t seem to have much faith that demand will soon accelerate.

Let’s hope such “growth pessimism” turns out to be misplaced.