European corporations: Cash-rich industries are getting richer.

The Covid-19 crisis has increased cash concentration among European non-financial corporates: overall, NFCs now hold cash reserves equivalent to three months of turnover, which is more than half a month higher than pre-crisis averages, and the wealthiest sectors and companies have become ever more prosperous. Given the recent continuation of soft lockdowns in major European countries, cash positions had also remained somewhat sticky, raising the risk of upside volatility for defensively and offensively investments in 2021.

According to the financials available as of early April, the companies reporting the ten most significant cash rises in 2020 increased by +56 per cent (compared to +45 per cent for the EU average). They were hoarding nearly half of all listed firms' cash. In light of this, governments have already begun to implement gradual exit strategies from broad fiscal support measures.

Companies are likely to use around half of their excess cash to finance rising working capital requirements and compensate for the sharp rise in input prices in the face of limited pricing power. However, in 2021, we anticipate both defensive and offensive investment strategies.

Sectors with the highest cash positions have been pursuing defensive trading strategies (e.g., increasing productive capacity, modernizing existing manufacturing equipment) and offensive investment plans strategies (e.g., acquiring competitors in worse financial shape) since the beginning of the year.