Key findings of the Bank of America Merrill Lynch 2013 CFO Outlook Asia report, which surveyed 600 CFOs and senior finance executives in the region:
- 71% and 62% of CFOs expect growth in their company’s revenues and profits, respectively, in 2013 compared with 2012.
- 81% and 72% of CFOs forecast growth in revenues and profits, respectively, in Southeast Asia in 2013 compared with 2012.
- CFOs in the region intend to maintain or increase borrowing (73%), and financing will be used for capital expenditure (23%) and to raise working capital (17%)
- Credit availability remained robust in the last year according to respondents (90%), and 47% expect the cost of capital to remain consistent this year.
- The majority of CFOs (63%) aren’t planning any M&A activity in 2013, and half of those who intend to will do so to achieve growth targets and will mostly look at opportunities in their home markets or in developing Southeast Asia.
What are your main conclusions from the survey?
Steven Victorin: It seems to me that the critical findings include the fact that credit and funding are still available, which is consistent with Bank of America Merrill Lynch’s attitude to its clients in the region. I’m not surprised that many firms, particularly in developing Southeast Asia have ambitious capital expenditure (capex) plans. These are part of long-term strategies and there is so much growth potential in the sub-region, so even if funding costs move higher those plans are likely to remain in place.
The CFO Outlook is one of numerous data points that BAML uses to understand its clients. We have many forums, whether large conferences such as the Treasury Forum we held for 200 firms in Singapore in early June or one-to-one meetings. It’s all part of the process of understanding our clients.
But, clearly optimism among CFOs in the region is not uniform and there is a sober awareness of risks to their forecasts.
I’m not surprised by the caution expressed by CFOs in Japan who have endured several years of a challenging business environment, nor by the relative conservatism of CFOs in Australia ahead of elections this year.
In general, commodity prices are always a major factor for companies in the region because they are such an important component of their raw material costs. Lead time matters to manufacturers especially. They don’t want to be caught out in a sudden upswing in prices while their buyers pull back.
Isn’t there a danger that surveys are inevitably lagging indicators of confidence and intentions, especially during such uncertain times for the world economy and financial markets?
Although it might seem that there is a time-lag between the survey’s findings and recent events — such as the indication of higher US interest rates and a possible credit crunch in China — the survey was put together very quickly from questionnaire responses to publication. Besides, the markets have experienced large fluctuations in recent years and CFOs and their companies have weathered major storms. This year’s survey again sheds relevant light on the perceptions and strategies of the evolving CFO function across the region, and the results remain valid and pertinent.
Despite economic uncertainty and global market headwinds, there remains a sense of unbridled optimism towards business prospects in Asia Pacific, according to the region’s leading CFOs. The survey reinforces the feedback we have received from our constant contact with our customers.
So, how will you ensure that Asia-based firms won’t be disappointed in their expectations of access to funding?
BAML, like other international banks, offers US dollar or other G3 currency funding at highly competitive rates because of our deposit base; domestic banks are better placed to provide local currency lending. Bank loans and trade financing are the core facilities used by companies in the region, which prefer their flexibility and often short tenors to other financing options. In contrast, incidentally, many US firms simply use these facilities as a backstop.
As a global institution, BAML is focused on leveraging its capital for target market clients where we’re able to provide full product and advisory services. As with other firms we’ll consider market conditions, credit quality, price, returns — any number of factors — but fundamentally rigour and focus on our target market drive our analysis and lending policies. BAML’s geographical strategy is to fully service our clients in those countries where they want to do business, particularly for the subsidiaries of multinationals.
