Thursday, February 23, 2012

Asia CFOs Look Closer to Home for Growth

HONG KONG--(BUSINESS WIRE)--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 released today by Bank of America Merrill Lynch.

Bank of America Merrill Lynch’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 U.S.

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 favorable 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 percent predicting higher GDP growth in their own countries in 2012, while 27 percent believe GDP growth will decelerate.

Japanese CFOs’ pessimism peaked with 44 percent predicting their country’s GDP growth will contract in the coming year, while 75 percent of their counterparts in India forecast an expansion in GDP growth for that country.

This compares with only 25 percent 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.

“But global macro issues such as the European debt crisis and the state of the U.S. 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 U.S., 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 percent) still forecast revenue to increase at their companies in 2012, with India CFOs leading the way at 77 percent.

More than half (52 percent) expected higher profits, led by those in India (68 percent), Australia (60 percent) and Singapore (54 percent).

The Year of the Dragon is also likely to see a continued expansion of trade within Asia. Almost two-thirds (64 percent) of the companies that sell to foreign markets expect sales to expand in Asian markets.

Sales to the U.S. and Western Europe, the traditional destinations of Asian exports, are not expected to grow – only 35 percent of companies that sell to the U.S. and 33 percent of companies selling to Western Europe expect higher sales.

Credit crunch? Not in Asia

Reflecting the relatively optimistic mood, 37 percent 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 percent 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 percent and 12 percent respectively).

Given the expectations on availability of credit and the revenue forecasts, it is no surprise that 39 percent of Asia CFOs expect to increase capital expenditure in 2012, while a further 38 percent intend to keep capex at 2011 levels.

Homebound M&A growth

The CFOs’ intentions for M&A rang loud and clear – the focus is on domestic acquisitions. Over 50 percent 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 percent followed by industry consolidation at 39 percent.

For the past 14 years, Bank of America Merrill Lynch has commissioned an annual survey which interviews CFOs of mid to large sized U.S. companies. For the first time, this survey has been conducted in Asia.

This inaugural 2012 CFO Outlook Asia report provides fresh insight into how large companies in the region assess the current and future state of seven Asian economies, the regional economy and the world economy.

The survey also gathers valuable insight from CFOs in Asia about their company’s revenues, profits, financial concerns and international activities.

From 28 September to 30 November 2011, CFO Innovation Asia completed 465 interviews with financial executives in Australia, China, India, Hong Kong, Japan, South Korea and Singapore with annual global revenues of at least US$500 million. These executives came from a range of multi-national, regional and single country companies.

The responses were weighted according to the size of the GDP of the countries to construct a composite picture of the Asian economy. China (38 percent) and Japan (35 percent) were given the heaviest weight, followed by India (11 percent), South Korea (7 percent), Australia (6 percent), Hong Kong (1 percent) and Singapore (1 percent)

Since more than 85 percent of those surveyed for this study have C-Suite titles, and the most common job title is CFO, all participants are referred to as CFOs throughout the report.

The statistical range of error for the total sample is plus or minus 4 percent. When significant differences are noted throughout the report, they are based on a 90 percent confidence level.

Bank of America Merrill Lynch

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