Global Business Outlook

Transcription

1 Global Business Outlook A joint survey effort between Duke University and CFO magazine John R. Graham D. Richard Mead Jr. Family Professor of Finance Director, Global Business Outlook Survey Fuqua School of Business 1 Global Business Outlook Quarterly Survey ( CFOs (financial execs) share their views on their firms and the overall economic outlook Since July 1996 (78 consecutive quarters) Joint between Duke University, CFO, FGV, IMEF, PyME, SAICA, ACCA, Tias, GEM, Laurier, Asian universities. Global: Africa, Asia, Europe, Latin America, and US Disseminated widely Policy makers: Fed, European Central Bank, Council of Economic Advisors, Bank of England, etc. Press: TV, WSJ, FT, BW, NPR, regional press, etc. Connect Ivory Tower with the Practice of Finance Research, Teaching, Global Connection 2 1

2 Survey Questions 2015 Q3 Business Optimism Top Concerns 3 Business plans for the next 12 months Hiring, Spending, Earnings, etc. 4 2

3 Acquisition plans Rotating Questions 2015 Q3 Labor market conditions 5 Stock market valuation, complacency for risk management, and 2016 presidency Global Business Outlook Duke University Mar

4 Demographics 7 Preview of US Results Economic Outlook North America outlook strongest in world, though down from Q2 Europe weak but recovering. Asia getting weaker, Latin America and Africa weak and getting weaker Employment and Wages Moderate U.S. labor market growth Wage growth due to labor market pressures (in some industries) Strong Dollar Will temper U.S. growth, exporters reduce CapX Economy Not Too Sensitive to Potential Interest Rate Hikes Minimum wage (in US) $10 $15 will accelerate shift towards machines or outside of US Taxes: 13% of US companies have considered relocating Perspectivas de Negocios en Latinoamérica Duke University / IMEF / CFO Magazine Aug

5 Top US CFO Concerns 1. Economic uncertainty 2. Cost of benefits 3. Attracting and retaining qualified employees 4. Regulatory requirements 5. Government policy 6. Weak demand for product/services 7. Data security 8. Employee productivity 9. Access to capital 10. Employee morale 9 Top US CFO Concerns by Industry Cost of Benefit Regulatory requirements Difficulty attracting qualified employee Manu Finance Healthcare Tech Software/Bio Service&Consulting 10 5

6 Domestic Employment Full Time 1 5% 1.4 Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep % United States Europe Asia Latin America Expected percentage change in domestic employment over next 12 months Source: Duke University / CFO Magazine Global Business Outlook 13 Earnings Growth 15% % 3.0 5% 0.1 Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015 United States Europe Asia Latin America Expected percentage change in earnings over next 12 months Source: Duke University / CFO Magazine Global Business Outlook 14 6

7 Product Prices % 0.6 Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep % United States Europe Asia Latin America Africa Expected percentage change in product price over next 12 months Source: Duke University / CFO Magazine Global Business Outlook 24 Wages and Salaries 1 5% Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep % United States Europe Asia Latin America Africa Expected percentage change in wages and salaries over next 12 months Source: Duke University / CFO Magazine Global Business Outlook 25 7

8 Capital Spending 15% 1 5% Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep % United States Europe Asia Latin America Africa Expected percentage change in capital spending over next 12 months Source: Duke University / CFO Magazine Global Business Outlook 26 Business Optimism Index Global Trends Country Business Optimism Index Country / Region Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015 Latin America United States Europe Asia Africa Own-Firm Business Optimism Index Sep 2015 Response Brazil Chile Peru Mexico Ecuador Uruguay Own Company Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015 Latin America United States Europe Asia Africa Brazil Chile Peru Mexico Ecuador Uruguay Notes: Presented data are the mean value for each region or country, Scale from

9 CFO Optimism about own country s economy, on a scale of 0 to 100 For U.S. firms, CFO Optimism about own firm s financial prospects Source: 29 Can CFOs Predict the Future? No, but CFOs know their business plans. CFOs tell us their plans anonymously, we aggregate across a region or industry. As long as business plans more or less hold for next 6 12 months, CFOs predict the future reasonably well CFO own firm optimism highly correlated with 12 month ahead national actuals: Earnings (43% correlation) Employment (81%) see chart GDP (78%) Source: Next 12 month Unemployment Rate y = x R² = Global Business Outlook Duke University Optimism Sep 2015 US Econ Next 12 Month Unemployment Rate 9

10 Can CFOs Predict the Future? Part 2 Current and Future Exports (as of 2010) 8 7 Current Exports Future Exports % 25 5 >5 Growth in Dollar Value of Exports Over Next Five Years Global Business Outlook Duke University Mar CFOs Predict Investment&Earnings Expectations of Next Twelve Month Earnings Growth by CFOs and Analysts CFO Earnings Expectations and Investment Plans Source: Expectations and Investment. Gennaioli, Ma and Shleifer (2015) 32 10

11 Why CFOs? 4) CFOs say it first Correlation with future quarter s value for CEO optimism (84%, 1 qtr ahead) see chart ISM (75%, 1) Conf Board consumer confidence (86%, 2) Michigan consumer confidence (81%, 1) UBS/Gallup Investor confidence (49%, 2) CEO (t+1) US CFO optimism as a predictor of CEO y = x R² = Source: Optimism US Econ(t) 33 Difficulty in Filling Key Positions How difficult is it for your firm to fill you key job opening? Percentage for finding it is difficult United States Europe Asia Latin America Africa

12 Merger and Acquisition Activity During the next year, does your company plan to acquire other companies or part of other companies? Percentage for answering yes United States Europe Asia Latin America Africa Latin American Business Outlook Duke University / FGV / CFO Magazine Sept Reasons for Making Acquisitions Why is your firm making acquisition(s)? (Choose 3) Industry position Product diversification Cost synergies Industry consolidation Geographic diversification Revenue synergies 36 12

13 Has risk management become complacent? Do you believe that firms in your industry have become complacent about the threat of, and potential negative effects of, future economic stress (for example, a recession or crisis)? 6 5 Percentage for answering yes United States Europe Asia Latin America Africa 37 Has risk management become complacent? Do you believe that firms in your industry have become complacent about the threat of, and potential negative effects of, future economic stress (for example, a recession or crisis)? 6 Percentage for answering yes

14 Is the stock market overvalued/undervalued? I believe that the stock market in my country is: 6 Percentage for overvalued/undervalued United States Europe Asia Latin America Africa overvalued undervalued 39 Expected Wage Growth Relative to the previous 12 months, what will be your company's PERCENTAGE CHANGE in Wages and Salaries during the next 12 months? 5% 4% % 2% % 1%

15 Return on Assets (ROA) 14% 12% 1 8% 6% 4% 2% US Europe Asia Latin America Africa Approximate ROA in 2014 Expected ROA in Takeaways Economic Outlook North America outlook strongest in world, though down from Q2 Europe weak but recovering. Asia getting weaker, Latin America and Africa weak and getting weaker Employment and Wages Moderate U.S. labor market growth Wage growth due to labor market pressures (in some industries) Strong Dollar Will temper U.S. growth, exporters reduce CapX Economy Not Too Sensitive to Potential Interest Rate Hikes Minimum wage (in US) $10 $15 will accelerate shift towards machines or outside of US Taxes: 13% of US companies have considered relocating Perspectivas de Negocios en Latinoamérica Duke University / IMEF / CFO Magazine Aug

16 From 2014 Q2 Global Business Outlook Duke University Mar Average Cash/Assets ( ) All firms on Compustat Cash / Assets (%) Source: Graham and Leary, Corporate Cash Global Business Outlook Duke University Mar

17 Cash/Assets ( ) Cash / Assets (%) Only NYSE Add Amex Add Nasdaq Average Aggregate Source: Graham and Leary, Corporate Cash Global Business Outlook Duke University Mar Intention to Deploy Cash Reserves Is it likely that your firm will begin to deploy its cash reserves during the next 12 months? US Europe Latin America Asia Africa Yes No Most firms in emerging economies expect to use their cash reserves in the coming year, not US firms. Only about half of US and European companies will spend out of cash reserves in the coming year 72% of Latin American firms will deploy cash reserves, which is the highest among all regions Global Business Outlook Duke University / FGV / CFO Magazine Mar

18 If Deploying Cash Reserves, on What? Capital spending or investment Acquisitions Pay down debt/line of credit Dividends or share repurchases Increase hiring Marketing and advertising Research and development % of Latin American firms plan to spend their cash reserves in the next 12 months. Among these firms More than half will use the cash for business spending and investment, one fourth to make acquisitions 25% will use excess cash to pay down debt. More than 2 intends to increase hiring. Global Business Outlook Duke University / FGV / CFO Magazine Mar If Not Deploying Cash, Why Not? Do not need cash reserves as a source of funds Need cash as liquidity buffer Lack excess cash to deploy Save cash as dry Holding cash until powder for future economic investment uncertainty declines opportunities 48.8% of Latin American firms are NOT planning to spend cash reserves. Among these firms Nearly 3 say they lack excess cash to spend; another 3 say they have alternative sources of funds More than 2 indicate that they need to hold their cash reserve until economic uncertainty declines Global Business Outlook Duke University / FGV / CFO Magazine Mar

19 Uncertainty and Business Planning Econ Conditions Does Uncertainty about Economic Conditions Affect Your Business Planning? % 62% % % Reduce/Delay Hiring Reduce/Delay Capital Spending Increase cash holdings No real effect Global Business Outlook Duke University Mar