Global Companies' Cash Reserves Reach 'All-Time High'

Companies Stockpile Amid COVID Uncertainty... 8055 Trillion Won Reserves

[Asia Economy Reporter Yujin Cho] Due to the uncertainty caused by COVID-19, global companies' cash reserves have soared to an all-time high. This overturns experts' early-year forecasts that corporate spending would increase with economic reopening following the COVID-19 pandemic recovery.

According to the Wall Street Journal (WSJ) on the 16th (local time), an analysis of corporate Q2 earnings reports by S&P Global revealed that cash and short-term investments during this period reached $6.84 trillion (approximately 8055 trillion KRW), marking a record high.

This represents a 2.6% increase from the previous quarter and is 45% higher than the five-year average from 2015 to 2019 before the COVID-19 pandemic.

United Airlines, a U.S. airline, held $23 billion in cash at the end of Q2, more than four times the amount held in the same period in 2019 before the COVID-19 outbreak, with an increase of $3.3 billion just this year.

U.S. cruise operator Carnival also increased its cash holdings from $2 to $2.5 billion before COVID-19 to $9 billion currently. Carnival raised an additional $2.4 billion in cash last month through asset sales.

David Bernstein, Carnival's Chief Financial Officer (CFO), explained, "We plan to maximize liquidity in preparation for the worst-case scenarios, such as prolonged suspension of cruise operations."

Regulatory authorities worldwide have encouraged companies to secure cash by suspending dividend payments and share buybacks during the pandemic.

As companies hoard cash in their coffers, mergers and acquisitions (M&A) have yet to return to pre-COVID-19 levels.

According to financial information provider PitchBook, global M&A in Q2 totaled $855 billion, a 12% increase from the same period last year but still less than the quarterly average of $984 billion in 2019 before the COVID-19 shock.

Earlier, Goldman Sachs analysts predicted that as COVID-19 uncertainties ease and the global economy reopens, capital expenditure growth among S&P 500 companies would rise from 10% to 19% this year.

However, JP Morgan forecasted in a report on the 6th that global corporate capital expenditures would sharply slow in Q3 this year. JP Morgan expects a 5.8% decrease in capital expenditure growth for companies in Q3.

This is due to renewed restrictions on movement by governments in Australia, Israel, China, and others amid the spread of the COVID-19 Delta variant, as well as the reinstatement of indoor mask mandates in the U.S., leading to a contraction in economic activity.

Mark Lewellen, head of corporate finance at Deutsche Bank, stated, "Infection rates in Europe have yet to come down, and concerns over new variants are growing, causing companies to adopt more conservative financial decisions."

This content was produced with the assistance of AI translation services.