Standard Chartered has released the conclusions of its inaugural corporate sentiment survey conducted by the bank’s equity research team. Key conclusions focus on optimism among corporates in Indonesia and in the energy sector, as well as a better inflation outlook in 2012 for most Asian economies.
This, the first of a series of quarterly surveys, was based on the views of 529 C-suite executives from seven Asian economies and 12 industry groups, 99% of whom are clients of Standard Chartered and business contacts of the equity research team. The survey differentiates itself by structuring questions that draw out important links between economic variables such as corporate order books, costs and margins, as opposed to focusing on single-issue variables. The responses thus help build a complete picture of the outlook for industry sectors and economies.
Alongside the stand-out conclusions, the survey identifies the rising trend in the use of the renminbi (RMB) as a settlement currency, with 37% of respondents using or intending to use it. The energy sector is also expected to benefit from a wave of new capital in 2012, with 44% of respondents indicating their plan to tap into the debt market for raising new capital.
Clive McDonnell, chief equity strategist at Standard Chartered equity research, said: “Investment implications from the survey support our recommendation for continued emphasis on companies that focus on domestic demand, particularly in Indonesia. We also expect margin pressure to ease in 2012, reflecting improvement in inflation expectations.”
Key challenges facing corporates in 2012 have also been identified in the survey. Twenty-eight percent of respondents see demand as their greatest challenge, closely followed by cost pressures, at 25%. Regulatory uncertainty took the third spot, with 19% of respondents indicating it as their biggest challenge.
“A likely recession in the West in 2012, as judged by our respondents, has failed to dampen bottom-up corporate sentiment in Asia. Our Aggregate Index signals a slight improvement in the lead indicators for business prospects in the year ahead, despite challenges of demand, cost pressures and regulatory obligations,” added McDonnell.
Analysis of the responses to the survey highlights a number of nuanced conclusions, with specific implications for investors:
- Buoyant new orders are centred on economies that are more domestically oriented, including Indonesia, India and Thailand.
- Capital expenditure (capex) and hiring plans are also biased towards these economies, whereas cyclical economies (with the exception of Korea) and sectors are less positive.
- The RMB is gaining traction as a settlement currency, with 37% of the respondents using or intending to use it.
- The biggest challenges faced by corporates are: the demand outlook (selected by 28% of respondents), cost pressures (25%) and regulation (19%).
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