The latest twice-yearly survey by SEB of North European companies operating in China suggests that they continue to revise their forecasts downward, as more adjust their investment plans and cut down on recruitments.
The Nordic financial services group’s China Financial Index in March falls to 56.2, from 57.1 in September 2015. One year ago, the index was at 62.6, although the level is still well over 50 – indicating positive sentiment overall.
Almost half of surveyed companies see better order intake, while more companies expect falling profits. Among other findings in the latest survey:
• Investment plans fall slightly from the previous survey in September 2015.
• Almost seven in 10 companies view customer demand as their biggest worry.
• Many more companies plan to cut staff in China and lower salary increases.
• The majority of companies expect the Chinese yuan (CNY) to continue depreciating.
SEB comments that economic data from China continue to indicate lower activity. Official gross domestic product (GDP) growth for 2015 was 6.9% but exports and imports continued to fall in the first two months of 2016, and most recent industry data suggests that economic growth continues to lose steam.
Around half of the companies surveyed expect sales to improve in the coming six months and nearly as many believe that profits will improve, but more than previously expect them to fall. A record number of companies are concerned about a fall in customer demand. Nearly seven in 10 companies view demand as their biggest concern, while one in 10 cite currency risks as their biggest concern and a similar number worry about competition.
“There’s both good and bad news in this survey,” said Fredrik Hähnel, head of SEB in Greater China. “Responses differ a lot between companies and industries. Some companies talk about double-digit growth for the first part of 2016 while others see how sales figures are now going down. But overall, we don’t see any general signs of a hard landing in China in our survey.
“Half of the companies expect an increase in sales in the coming six months, which is a slight improvement from the last survey. At the same time, every fourth company expects lower order intake, and a record high of 30% of the companies that participated in the survey say that their profits will fall in the coming six months in China. This is clearly a worrying sign”.
Expansion plans continue to fall, with only 40% companies planning further investments in the next six months, and most only planning a modest spend. More companies than previously (20%) will reduce their number of staff in China, and around half of respondents do not plan any changes in the number of employees.
“In earlier surveys, our conclusion has been that companies were not too concerned with the economic slowdown and therefore didn’t revise their expansion plans in China,” said Hahnel. “However, in the last two surveys we see a very clear change of trend. Six out of 10 companies don’t plan any investments at all in the near future, and two out of 10 even plan to reduce the number of staff.
“All in all, this is a clear indication that an increasing number of companies don’t see the economic slowdown as temporary anymore but rather expect the economic climate to have changed more permanently.
“Meanwhile, one-third do have plans to expand in China, which is related to what industry the companies are active in. From discussions with our clients, we know that service and consumer-oriented companies continue to grow while companies in sectors like cement or steel have a very dark view of the business climate and are dealing with over-capacity and falling margins”.
After the devaluation of the Chinese currency against the US dollar last August, the CNY continued to depreciate until recently, since when it has stabilised at a slightly stronger level. People’s Bank of China (PBOC), the country’s central bank, has made clear that it aims to keep the CNY stable against a basket of currencies rather than pegged against the USD. However, most of the companies surveyed expect further depreciation and more than half plan to hedge their currency exposure.
The US money market fund reforms came into effect in 2016 and are already dramatically shaping US fund industry with investors flooding out of prime funds and into government securities. While the reforms are similar, they are not the same. GTNews interviews Yeng Bulter, global head of the cash business at State Street Global Advisors on the differences.
Far and away, the largest financial market on the planet is the foreign exchange currencies market, where on average individuals and organisations trade more than $5 trillion daily. In the FX world, the ability to master the market isn't considered a luxury for treasury officers–it's a necessity.
Using data for predictive analytics is the future of banking success, argued Jean-Laurent Bonnafé, CEO of BNP Paribas, in his session on how the bank is reinventing its approach to innovate with and for corporates.
The top five sectors Asian fintech investors are interested in are data analytics, blockchain, lending, payments and regtech, according to Gary Hwa, EY regional managing partner.