Asian Business Outlook
Part of the Global Business Outlook
A joint survey effort between
Duke University,
Beijing National Accounting Institute
and
CFO magazine
Asian Business Outlook
Duke University /CFO Magazine
Dec 2016
1
Top Concerns of Asian CFOs
1. Economic Uncertainty
2. Weak demand for product/services
3. Government policy
4. Currency risk
5. Difficulty attracting qualified employees
5. Difficulty attracting qualified employees
6. Employee productivity
7. Access to capital
8. Employee morale
9. Regulatory requirements
10. Rising wages and salaries
Asian Business Outlook
Duke University /CFO Magazine
Dec 2016
2
Business Optimism Index
High optimism in China is offset by weaker optimism in several other Asian countries
Global Trends
Dec 2016 Response
Country Business Optimism Index
Country / Region
75
65
55
45
35
Dec 2015
Mar 2016
Jun 2016
Sept 2016
Asia
United States
Latin America
Africa
Dec 2016
80
70
60
50
40
30
20
10
0
Europe
Own-Firm Business Optimism Index
Own Company
75
80
70
60
50
40
30
20
10
0
65
55
45
35
Dec 2015
Mar 2016
Jun 2016
Sept 2016
Asia
United States
Latin America
Africa
Dec 2016
Europe
Notes: Presented data are the mean value for each region or country, Scale from 0-100
Asian Business Outlook
Duke University /CFO Magazine
Dec 2016
3
Expected Product Price Inflation
Asia inflationary expectations increases, boosted by China and Malaysia
Product Prices
Global Trends
Dec 2016 Outlook
10%
4%
5%
2%
0%
Dec 2015
-5%
Mar 2016
Jun 2016
Sept 2016
Asia
United States
Latin America
Africa
Dec 2016
Europe
Inflation remain low in Asia, especially compared
to Africa and Latin America


0%
High inflationary pressures in China and Malaysia
are offset by softer expected inflationary readings in
Japan, India and Australia.
CFOs in Asia and the US expect low inflation, while
CFOs in Europe expect flat prices.
-2%
Inflation expectations highest in China
 Of responding Asian countries, China has the highest
inflationary expectations.
 Producer prices have accelerated to a near-five high in
China, fueled by stronger government spending, record
bank lending and a red-hot property market.
 CFOs in Japan, India and Australia, conversely, expect prices
of their products to fall.
Notes: Presented data are the mean or median values for each region or country.
Asian Business Outlook
Duke University /CFO Magazine
Dec 2016
4
Expected Growth in Sales Revenue
Overall, CFOs in Asia expect moderate growth in sales revenue.
Dec 2016 Outlook
Global Trends
15%
15%
Revenue
10%
10%
5%
5%
0%
Dec 2015
-5%
Mar 2016
Jun 2016
Sept 2016
Asia
United States
Latin America
Africa
Dec 2016
Europe
Asian revenue growth increases


0%
Revenue expectations in Asia increases from last
quarter.
Overall, Asian revenue growth expectations lead
other emerging economies.
China and Australia expect most rapid revenue growth, followed
by India
 Overall Asian growth is pulled down by Japan and Singapore.
 China has the highest sales growth, much greater than the
inflation rate, attributed partially to surging private consumption.
 China’s growth in sales revenue is powered by an exploding
middle class and encouraged by stronger government spending
Notes: Presented data are the mean or median values for each region or country.
Asian Business Outlook
Duke University /CFO Magazine
Dec 2016
5
Capital Spending Plans
Asian capital spending will be moderate, with a slight dip from last quarter
Dec 2016 Outlook
Global Trends
10%
Capital Spending
15%
10%
5%
5%
0%
Dec 2015
Mar 2016
Jun 2016
Sept 2016
Dec 2016
0%
-5%
Asia
United States
Latin America
Africa
Moderate capital spending plans



Europe
Business spending is largely positive in Asia
Asian CFOs expect moderate business spending growth,
 China, India, Singapore, Malaysia and Vietnam anticipate growth
though expectations have dipped from last quarter.
in capital expenditures
Business spending is still weak in the US, but sentiment has  Singapore expects the largest growth in capex, undeterred by
improved slightly from previous quarter
slowing GDP growth and headwinds such as slow external demand
Expectations have dropped drastically in Europe,
 Capital spending in Japan is largely muted as firms are adopting a
underscoring uncertainty related to Brexit
cautious stance towards uncertainties overseas. Businesses are
holding tight on spending amid sluggish demand both at home
and abroad.
Notes: Presented data are the mean or median values for each region or country.
Asian Business Outlook
Duke University /CFO Magazine
Dec 2016
6
Expected Change in Earnings
Earnings growth is expected to dip in Asia after a previous high of around 10% growth
Dec 2016 Outlook
Global Trends
15%
10%
Earnings
10%
5%
5%
0%
0%
Dec 2015
-5%
Mar 2016
Jun 2016
Sept 2016
Asia
United States
Latin America
Africa
Dec 2016
Europe
Positive earnings growth, except in Latin America


Asian earnings are expected to grow but at a lower
pace compared to the previous quarter.
All major continents expect earnings to increase
except Latin America, which earnings are expected
to decline due to expected changes following the
US election and political turmoil in several key
economies.
-5%
Mixed earnings growth across Asia
 China lowers expected earning growth, possibly caused by
fluctuations in USD/RMB that impact export business.
 India and Singapore anticipate slight positive earnings growth,
while Malaysia expect negative growth.
Notes: Presented data are the mean public company value for each region or country.
Asian Business Outlook
Duke University /CFO Magazine
Dec 2016
7
Fulltime Employment Outlook
Asian CFOs expect fulltime domestic employment to grow strongly next year
Dec 2016 Outlook
Global Trends
# FT Employees
10%
8%
5%
4%
0%
Dec 2015
Mar 2016
Jun 2016
Sept 2016
Dec 2016
0%
US
-5%
Asia
United States
Latin America
Africa

Asia
Latam
China
Japan
India
Europe
Positive employment outlook in Asia

Europe
-4%
Chinas lead employment growth in Asia
Asian and US CFOs expect positive employment
growth in the next year, with the Asian
expectation much stronger
Latin America and Africa expect fulltime
employment to shrink.
 China expect positive growth in fulltime employment,
much stronger than other countries around the globe.
 Japan and India expect employment to moderately grow.
Notes: Presented data are the mean value for each region or country
#FT=Number of Fulltime Employees
Asian Business Outlook
Duke University /CFO Magazine
Dec 2016
8
Expected Wage and Salary Increases
Asian wages and salaries are projected to increase by 6.8% over the next year
Dec 2016 Outlook
Global Trends
8%
Wages & Salaries
10%
6%
5%
4%
2%
0%
Dec 2015
Mar 2016
Jun 2016
Sept 2016
Dec 2016
0%
-5%
Asia
United States
Latin America
Africa
Europe
High but volatile wage growth in Asia



Moderate wage growth in most Asian countries
Asia has volatile historical wage increases, and wage
growth is expected to rise in Q4.
Africa has high wage growth and the trend is
expected to continue, with wages outgrowing
inflation.
Europe has the lowest wage growth.
 Wages will increase 3% in Japan; which is good
news in a deflationary environment.
 China anticipates a strong wage increase, which
is highest among Asia countries.
Notes: Presented data are the mean value for each region or country
Asian Business Outlook
Duke University /CFO Magazine
Dec 2016
9
Increased debt usage exposes some Asian firms to greater financial risks
Please consider the amount of debt taken on by other firms in your industry over the
past three years…
Has borrowing exposed firms to greater financial risk?
More financial risks
46%
About normal
financial risk
44%
Less financial risk
10%
Asian Business Outlook
Duke University /CFO Magazine
Dec 2016
10
Debt-induced financial risk is larger in developing economies
Please consider the amount of debt taken on by other firms in your industry over the past three
years…
100%
80%
60%
40%
20%
0%
US
Europe
Less financial risk than normal
Asian Business Outlook
Asia
Latin America
About normal financial risk
Duke University /CFO Magazine
Dec 2016
Africa
More financial risk
11
Debt is primarily used to finance business spending and hiring
Please consider the amount of debt taken on by other firms in your industry over the
past three years: How have these firms used the debt proceed:
60%
50%
40%
30%
20%
10%
0%
For ‘real’ activities like hiring, For ‘financial’ activities like paying
capital spending, or acquisitions dividends or share repurchases
Asian Business Outlook
Duke University /CFO Magazine
To build up a cash reserve
Dec 2016
Issued debt to avoid repatriating
foreign profits
12
Debt burden will limit future investment opportunities
Will the debt burden of these firms limit their ability to pursue future investment
opportunities?
No
30%
Yes, will limit
investment
moderately
53%
Asian Business Outlook
Duke University /CFO Magazine
Yes, will limit
investment
significantly
17%
Dec 2016
13
Debt burden will limit investment opportunities in developing economies
Will the debt burden of these firms limit their ability to pursue future investment opportunities?
100%
80%
60%
40%
20%
0%
US
Europe
No
Asian Business Outlook
Asia
Latin America
Yes, will limit moderately
Duke University /CFO Magazine
Africa
Yes, will limit significantly
Dec 2016
14
Most firms have the correct mix of floating and fixed rate debt
Do firms have the correct mix between floating and fixed rate debt?
Too much floating/too
little fixed
19%
Too little floating/too
much fixed
22%
Correct floating vs.
fixed mix.
59%
Asian Business Outlook
Duke University /CFO Magazine
Dec 2016
15
1-in-5 Asian CFOs expect to be CEO within five years
What is the probability that you will be a CEO in 5 years?
30%
25%
20%
15%
10%
5%
0%
US
Asian Business Outlook
Europe
Asia
Duke University /CFO Magazine
Latin America
Dec 2016
Africa
16
Half of Asian respondents say CFO job tasks train them to be CEOs
Do your current job tasks adequately prepare you to be a CEO at some point in the future?
80%
70%
60%
50%
Yes
40%
No
30%
20%
10%
0%
US
Asian Business Outlook
Europe
Asia
Duke University /CFO Magazine
Latin America
Dec 2016
Africa
17
China’s Anti-Corruption Efforts Moderately Improves Competitiveness
Within China, have anti-corruption efforts helped the competitiveness of firms in your industry?
Change in competitiveness
By industry
80%
No change
53%
Improved
competitiveness
30%
70%
60%
50%
40%
30%
20%
Reduced
competitiveness
17%
10%
0%
Banking/Real Estate Service/Consulting
Improved competitiveness
Asian Business Outlook
Duke University /CFO Magazine
Dec 2016
Manufacture
No change
Transportation/Pub.
Util
Energy
Reduced competitiveness
18
China’s Anti-Corruption Efforts Lead Firms To Be Too Cautious
Have the anti-corruption efforts affected the amount of risk firms in your industry are willing to take on?
Change in risk taking
By industry
Yes, now firms are
too cautious
46%
70%
60%
50%
Yes, but firms
still take on
the right
amount of risk
18%
40%
30%
20%
10%
No
30%
Yes, now firms take
on too much risk
6%
Asian Business Outlook
0%
Banking/Real Estate
Duke University /CFO Magazine
No
Service/Consulting
Yes, too cautious
Dec 2016
Manufacture
Transportation/Pub.
Util
Yes, but right amount
Energy
Yes, too risky
19
Japan's Corporate Governance Code Has Positive Effect
How does the introduction of Japan's Corporate Governance Code affect...
70%
60%
50%
40%
30%
20%
10%
0%
the Japanese economy
your company
Negative
Asian Business Outlook
No effect
Duke University /CFO Magazine
Positive
Dec 2016
18
Return on Assets (ROA)
Profit growth in Asia is expected to be weaker than other regions such as US, Europe and Latin America.
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
US
Europe
Asia
Latam
China
Japan
Approximate ROA in 2016
India
Singapore Malaysia Australia
Vietnam
Thailand
Expected ROA in 2017
Profit margins are expected to rise in all regions, relative to 2016 profits
 CFOs in Asia mostly expect ROA to be higher in 2017, relative to 2016, with the exception of India, Singapore and Malaysia.
 CFOs in Vietnam and Singapore expect the highest ROA in 2017.
Asian Business Outlook
Duke University /CFO Magazine
Dec 2016
21
Asian Business Outlook
Part of the Global Business Outlook
A joint survey effort between
Duke University,
Beijing National Accounting Institute
and
CFO magazine
Asian Business Outlook
Duke University /CFO Magazine
Dec 2016
22