Asia Pacific CFOs Bullish on Revenues, Less so on Profits
April 13 2014 - 11:00PM
Business Wire
Asia Pacific’s leading chief financial officers (CFOs) are
increasingly optimistic that revenues will rise in 2014 compared to
last year, but are less optimistic on the outlook for profits.
In a survey of regional CFOs commissioned by Bank of America
Merrill Lynch, 76 percent of respondents said they expect revenues
in 2014 to rise, up from 72 percent in the same survey last year.
However, just 60 percent of those surveyed expect profits to rise,
down from 65 percent in 2013.
“Margin pressure is a real issue this year given the rising
costs of doing business,” said Steven Victorin, head of Asia
Pacific Corporate Banking and Global Corporate Banking Subsidiaries
at Bank of America Merrill Lynch. “Costs associated with labor,
materials and financing have been rising as the Fed normalizes its
monetary policy through tapering of its quantitative easing
program. Long-term rates may go up, and certain countries – such as
India and Indonesia – already have hiked interest rates. We also
have seen depreciation of some currencies last year, which equates
to rising imported material costs.”
The Bank of America Merrill Lynch 2014 CFO Outlook Asia report
surveyed 639 CFOs and other senior financial executives in the
region. Close to 60 percent of them represent corporations with
annual revenues of US$1 billion and above.
Now in its third edition, the report offers insight into the
strategies deployed by key financial decision makers across
multiple industries and 12 economies, with a 50-50 split this year
between respondents from multinational corporations and large local
companies. Interviews were conducted in Australia, China, Hong
Kong, India, Indonesia, Japan, Malaysia, the Philippines,
Singapore, South Korea, Taiwan and Thailand.
Other key findings include:
- CFOs in the manufacturing sector are
the most bullish on both top line and bottom line expectations: 83
percent expect revenue growth, and 67 percent forecast higher
profit this year.
- Effect of Federal Reserve (Fed)
tapering: A minority (41 percent) of CFOs agree that the end of
quantitative easing in the U.S. will lead to major problems in
Asia, while 59 percent have no opinion or disagree.
- Financial markets risks top CFOs’ list
of concerns for 2014: 36 percent are most concerned about financial
markets risks, followed by operational risk at 25 percent and
macro-economic risk at 24 percent. In the financial markets risks
category, CFOs are most concerned about currency volatility (35
percent), liquidity risk (30 percent) and interest rate movements
(20 percent). Counterparty risk is at the bottom of the list at 15
percent.
- Bank borrowing is the top choice for
financing despite interest rate uncertainties: 57 percent of CFOs
expect to finance their business with bank loans, more than
doubling the 25 percent in 2013. Appetite for this mode of
financing is highest in the manufacturing sector, with 66 percent
of CFOs planning to use bank loans, followed by 64 percent in
pharmaceuticals and 61 percent in the metals and mining sector.
Internal sources of funding or self-funding was favored by 29
percent of CFOs regionwide.
Political change does not seem to pose a threat to business as
86 percent of CFOs think any change will have a positive or no
impact on their business. However, 26 percent rate political unrest
as their highest enterprise risk.
In the space of mergers and acquisitions (M&A), the focus is
on South and Southeast Asia this year, although overall there is a
preference for organic growth over M&A throughout the region.
Of those surveyed, 62 percent of CFOs do not plan to participate in
M&A activity this year. Those who do will focus on Southeast
Asia, emerging Southeast Asia (Vietnam, Myanmar, Laos and Cambodia)
and India/South Asia. Interest in China has waned, with only 15
percent of CFOs indicating interest compared to 24 percent in
2013.
“Investment interest in Southeast Asia and India is holding up,
despite Fed tapering concerns,” said Dr. Chua Hak Bin, head of
Emerging Asia Economics at Bank of America Merrill Lynch. “The tail
risk seems to be China this year, where investors have turned more
cautious. Concerns over shadow banking and more trust defaults will
likely weigh on confidence for the rest of the year.”
To download the Bank of America Merrill Lynch 2014 CFO Outlook
Asia report, please visit http://www.baml.com/cfooutlookasia.
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Reporters May Contact:Elaine Quek, Bank of America Merrill
Lynch, 65.9328.6187elaine.quek@baml.comAndrew Peck, Bank of America
Merrill Lynch, 852.6106.0722andrew.peck@baml.com
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