The percentage of respondents viewing a recession in the West as likely or very likely dipped to 43%, compared to 93% in the prior quarter, according to Standard Chartered’s Corporate Sentiment Survey across Asia (excluding Japan).
The consumer sector, a traditionally defensive sector, was hailed as a consistent performer, garnering the most optimistic corporate sentiment among survey respondents. Reasons for the positive sentiment amongst corporates may reflect the structural trend towards higher consumption and lower savings across the region.
Clive McDonnell, chief equity strategist at Standard Chartered equity research, said: “Our survey continues to paint a detailed picture of the bottom-up outlook for corporates in Asia ex Japan. In particular, we note the consistent performance of the consumer sectors and the increasing use of the RMB [renminbi] as a settlement currency. We view both trends as structural in nature and investors should continue to position portfolios to take account of these signals.”
Addressing the observed increased use of the RMB as a settlement currency, McDonnell added: “We would focus attention on mid-sized Hong Kong banks that can leverage their China bank licences to extract value from this trend. Another possibility is to increase exposure to companies with RMB streams of revenue and profit as increased RMB use points to structural appreciation pressure on the currency over time.”
Analysis of the responses to the survey highlights a number of nuanced conclusions, with specific investor implications:
- The consumer sectors – staples and discretionary – have been consistent, albeit not top performers since Standard Chartered launched the survey. This finding ties in with the bank’s focus on domestically demand driven economies as key equity market winners in the coming years.
- Corporate optimism in Indonesia remained unchallenged in the latest quarter. Indeed, Standard Chartered notes that while most countries witnessed marginal deterioration in the level of corporate sentiment, Indonesia saw a marginal improvement.
- The technology sector has been generating weak scores from corporates in terms of the outlook for growth in individual counties as well as the sector. However, it appears to fall into the trap of believing that despite this poor outlook, prospects at the corporate level are significantly better.
- Banks appear conflicted in that they expect significant improvement in the availability of interbank liquidity, yet are less optimistic on net interest margins than in the prior quarter.
- The RMB continues to widen its role as a settlement currency with banks reporting a steady sequential increase in its use.
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