Asia CFOs Look Closer to Home for Growth
Chief financial officers (CFOs) in Asia, excluding those in Japan, are positive about the regional economy but cautious on their view of the world economy. They ranked the current state of the region’s economy 6.4 out of 10, while their rating for the global economy was substantially lower at 4.7, according to the 2012 CFO Outlook Asia report by Bank of America Merrill Lynch (BofA Merrill).
BofA Merrill’s inaugural CFO Outlook Asia report highlighted responses from 465 CFOs across seven countries and territories in Asia – Australia, China, India, Hong Kong, Japan, Korea and Singapore – to tap into the views of the finance chiefs of Asia’s large corporations. The findings build a detailed picture of the issues affecting those companies in the coming year and identify areas where growth and activity are most likely to be focused.
From the interviews, which were conducted in the fourth quarter of 2011, it is clear that CFOs in Asia believe that the Year of the Dragon will buffer them from economic threats in Europe and the US. However, to keep those threats at bay, China’s economic dragon will need to keep breathing fire to avoid Asia’s CFOs having to contend with their own domestic concerns.
China’s Economic Dragon Fires up Regional Growth
CFOs in China were most positive about the state of their economy with a score of 7.5 out of 10, while CFOs in Japan had a less favourable view of their domestic economy at 4.1, than of the global economy. China CFOs were also relatively confident they were buffered against the economic issues of the West, rating their economy’s sensitivity to a global slowdown at 6.6, below the Asia average of 7.0.
CFOs in Asia were less optimistic about the future, with only 32% predicting higher GDP growth in their own countries in 2012, while 27% believe GDP growth will decelerate. Japanese CFOs’ pessimism peaked with 44% predicting their country’s GDP growth will contract in the coming year, while 75% of their counterparts in India forecast an expansion in GDP growth for that country. This compares with only 25% of China CFOs forecasting accelerating GDP growth in that economy.
“The region continues to experience strong economic fundamentals and remains a relatively bright spot within the global economy,” said Matthew Koder, head of Asia-Pacific global corporate and investment banking, BofA Merrill. “But global macro issues such as the European debt crisis and the state of the US economy have contributed to the uncertainty in this part of the world and clouded the outlook for growth, showing that Asia is not immune to global forces.”
In addition to the uncertainty surrounding the situations in Europe and the US, CFOs in Asia were most concerned about oil prices, the impact of an economic slowdown in China and in Hong Kong, Singapore, Korea and China, asset bubbles in property prices.
Asian CFOs Look Inward to Expand
For all the worries about the macro-economic picture, the majority of CFOs in Asia (58%) still forecast revenue to increase at their companies in 2012, with India CFOs leading the way at 77%. More than half (52%) expected higher profits, led by those in India (68%), Australia (60%) and Singapore (54%).
The Year of the Dragon is also likely to see a continued expansion of trade within Asia. Almost two-thirds (64%) of the companies that sell to foreign markets expect sales to expand in Asian markets. Sales to the US and western Europe, the traditional destinations of Asian exports, are not expected to grow – only 35% of companies that sell to the US and 33% of companies selling to western Europe expect higher sales.
Credit Crunch? Not in Asia
Reflecting the relatively optimistic mood, 37% of companies in Asia expect borrowing needs in 2012 to increase with the same percentage forecasting that their borrowing needs will remain the same.
The majority of CFOs have not experienced a credit crunch in Asia with 45% having seen credit availability remain at the same level as the previous year. Thirty-nine percent even say that credit availability had somewhat increased or significantly increased (27% and 12% respectively).
Given the expectations on availability of credit and the revenue forecasts, it is no surprise that 39% of Asia CFOs expect to increase capital expenditure in 2012, while a further 38% intend to keep capital expenditure (capex) at 2011 levels.
Homebound M&A Growth
The CFOs’ intentions for merger and acquisition (M&A) rang loud and clear – the focus is on domestic acquisitions. Over 50% of CFOs considering M&A in 2012 were looking to do so in their home market. The most cited reason for planned M&A is to ensure growth at 74%, followed by industry consolidation at 39%.