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Survey finds chief financial officers in Southeast Asia|less optimistic on growth, revenue prospects this year

CHIEF FINANCIAL officers in Malaysia, Thailand, Indonesia and the Philippines are less optimistic about revenue and profit growth this year, according to Bank of America Merrill Lynch. Of those surveyed in Southeast Asia, 72 per cent expect revenues to rise, a drop from last year's more buoyant 81 per cent. Only 63 per cent look for an increase profits, down from 72 per cent last year.

The figures closely track the Asia-Pacific average of 76 per cent and 60 per cent. Last year's survey found Southeast Asian CFOs among the most bullish in Asia-Pacific.

"This less buoyant sentiment can be attributed to rising costs associated with financing, materials and labour as the Federal Reserve tapers its quantitative easing programme, coupled with the depreciation of some local currencies," Gregory Seow, Southeast Asia head of corporate banking, said yesterday.

"Margins are being squeezed."

Bank of America Merrill Lynch surveyed 639 CFOs and other senior financial executives in the region, with almost 25 per cent coming from Singapore, Malaysia, Thailand, Indonesia and the Philippines. Close to 60 per cent of them represent corporations with annual revenues of US$1 billion and above.

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 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.

While all other CFOs in the 12 markets surveyed expressed more optimism in revenue growth than profit growth, CFOs in Malaysia and Singapore bucked the trend. In Malaysia, 70 per cent expect profits to grow, while only 53 per cent forecast revenue growth. Of the Singapore CFOs, 68 per cent expect profit growth, marginally above the 61 per cent with revenue growth expectation.

"This optimism on profits over revenues stems from how Singapore and Malaysia are seen as beneficiaries of stronger US growth," Seow said.

"Further, their central banks are very credible and experienced at managing foreign exchange volatility, which directly impacts the bottom line for companies with cross-border relationships. The two economies are also more resilient because of their large current account surpluses."

Financial markets risks top Asia-Pacific CFOs' list of concerns for 2014. About 36 per cent are most concerned about financial markets risks, followed by operational risk at 25 per cent and macroeconomic risk at 24 per cent.

In the financial markets risks category, CFOs are most concerned about currency volatility (35 per cent), liquidity risk (30 per cent) and interest rate movements (20 per cent). Counterparty risk at 15 per cent is at the bottom of the list.

CFOs in Indonesia are the most concerned in Asia-Pacific about currency volatility, with 70 per cent listing it as their top financial markets risk. This is followed by Singapore CFOs at 55 per cent and Malaysia CFOs at 47 per cent.

Other key findings:

n Political change: more of an opportunity than a risk. Of the CFOs surveyed, only 13 per cent across Asia-Pacific are concerned that political change in their home countries in 2014 will have a negative impact on their business, while 38 per cent expect a positive impact. Political risk is shrugged off in Thailand, where just 10 per cent of CFOs are concerned, while majorities in Indonesia (57 per cent) and India (53 per cent) are optimistic about the impact of this year's elections.

n Mergers & acquisitions: South and Southeast Asia bound. Overall there is a preference for organic growth over M&A throughout the region. Of all CFOs surveyed, 62 per cent do not plan to participate in M&A activity this year. Those who do will focus on Southeast Asia, emerging Southeast and India/South Asia. Interest in China has waned, with only 15 per cent of CFOs indicating interest compared to 24 per cent last year.

n Of the CFOs surveyed in Thailand, 71 per cent expect to focus their M&A activities on emerging Southeast Asia - Cambodia, Laos, Myanmar and Vietnam. Across all the M&A regions listed in the survey, this is the greatest interest shown by any one market's CFOs on any M&A region.

n Of the Singapore CFOs surveyed, 47 per cent named India/South Asia as an area of M&A focus, while 40 per cent are focused more on Southeast Asia.

n Fed tapering: already factored in by most CFOs. For Asia-Pacific. 41 per cent agree that the end of quantitative easing in the US will lead to major problems in Asia, while 59 per cent have no opinion or disagree. CFOs in Asean-5 are of the same opinion, with 46 per cent agreeing major problems will surface in Asia, and the rest disagreeing or having no opinion.


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