global business outlook - alpha architect · 2018. 9. 7. · 9/21/2015 1 global business outlook a...

9/21/2015

1

Global Business Outlook

A joint survey effort between

Duke Universityand

CFO magazine

1Global Business Outlook Duke University Sep 2015

John R. GrahamD. Richard Mead Jr. Family Professor of Finance

Director, Global Business Outlook SurveyFuqua School of Business

Global Business Outlook

2

• Quarterly Survey (www.cfosurey.org) – 1000+ 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

Global Business Outlook Duke University Sep 2015

9/21/2015

2

3

BusinessOptimism

TopConcerns

Survey Questions – 2015 Q3


4

Business plans for the next 12 months• Hiring, Spending, Earnings, etc.


9/21/2015

3

Global Business Outlook Duke University Sep 2015 5

Acquisition plans

Labor market conditions

Rotating Questions – 2015 Q3

Global Business Outlook Duke University Mar 2015 6

Stock market valuation, complacency for risk management, and 2016 presidency

9/21/2015

4

7

Demographics


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

8Perspectivas de Negocios en Latinoamérica Duke University / IMEF / CFO Magazine Aug 2015

9/21/2015

5

Top US CFO Concerns

1. Economic uncertainty

2. Cost of benefits

3. Attracting and retaining qualified employees

4. Regulatory requirements

5. Government policy

9

6. Weak demand for product/services

7. Data security

8. Employee productivity

9. Access to capital

10. Employee morale


Top US CFO Concerns—by Industry

10

0%

10%

20%

30%

40%

50%

60%

70%

Cost of Benefit Regulatory requirements Difficulty attracting qualifiedemployee

Manu Finance Healthcare Tech Software/Bio Service&Consulting


9/21/2015

6

13

Expected percentage change in domestic employment over next 12 monthsSource: Duke University / CFO Magazine Global Business Outlook

Domestic Employment ‐ Full Time

1.40%

‐…

‐5%

0%

5%

10%

Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015

United States Europe Asia Latin America


14

Expected percentage change in earnings over next 12 monthsSource: Duke University / CFO Magazine Global Business Outlook

Earnings Growth

3.00%

8.10%

0.10%

‐5%

0%

5%

10%

15%


United States Europe Asia Latin America


9/21/2015

7

24

Expected percentage change in product price over next 12 monthsSource: Duke University / CFO Magazine Global Business Outlook

Product Prices

0.60%

7.50%

‐5%

0%

5%

10%


United States Europe Asia Latin America Africa


25

Expected percentage change in wages and salaries over next 12 monthsSource: Duke University / CFO Magazine Global Business Outlook

Wages and Salaries

3.30%

5.50%

‐5%

0%

5%

10%




9/21/2015

8

26

Expected percentage change in capital spending over next 12 monthsSource: Duke University / CFO Magazine Global Business Outlook

Capital Spending

2.40%

0.50%

‐5%

0%

5%

10%

15%




Business Optimism Index

Global Trends

Co

un

try

/ Reg

ion

Sep 2015 Response

28

40

50

60

70

Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015Latin America United StatesEurope AsiaAfrica

Notes: Presented data are the mean value for each region or country, Scale from 0-100

Country Business Optimism Index

Own-Firm Business Optimism Index

Ow

n C

om

pan

y

40

50

60

70

Sep 2014 Dec 2014 Mar 2015 Jun 2015 Sep 2015Latin America United States Europe

Asia Africa

0

10

20

30

40

50

60

70

80

Brazil Chile Peru Mexico Ecuador Uruguay

0

10

20

30

40

50

60

70

80

Brazil Chile Peru Mexico Ecuador Uruguay


9/21/2015

9

29

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: www.cfosurvey.org


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%)



y = -0.1715x + 16.418R² = 0.6481

0

2

4

6

8

10

12

40 50 60 70 80

Ne

xt 1

2 m

on

th

Un

em

plo

yme

nt R

ate

Optimism US Econ

Next 12 Month Unemployment Rate

9/21/2015

10


Can CFOs Predict the Future? Part 2Current and Future Exports (as of 2010)

0%

10%

20%

30%

40%

50%

60%

70%

80%

0% 1‐24% 25‐50% >50%

Current Exports

Future Exports

Growth in DollarValue of ExportsOver Next Five Years

CFOs Predict Investment&Earnings

32

Source: Expectations and Investment. Gennaioli, Ma and Shleifer (2015)


Expectations of Next Twelve Month Earnings Growth by CFOs and Analysts

CFO Earnings Expectations and Investment Plans

9/21/2015

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)

33


y = 2.9312x - 103.34R² = 0.7033

-20

0

20

40

60

80

100

120

40 50 60 70 80

CE

O (

t+1)

Optimism US Econ(t)

US CFO optimism as a predictor of CEO


Difficulty in Filling Key Positions

34

0%

20%

40%

60%

80%


How difficult is it for your firm to fill you key job opening?

Per

cen

tag

e fo

r fi

nd

ing

it

is d

iffi

cult


0%

20%

40%

60%

80%

9/21/2015

12

Merger and Acquisition Activity

35Latin American Business Outlook Duke University / FGV / CFO Magazine Sept 2015

0%

10%

20%

30%

40%

50%

60%

United States Europe Asia Latin America Africa 0%

10%

20%

30%

40%

50%

60%

During the next year, does your company plan to acquire other companies or part of other companies?

Per

cen

tag

e fo

r an

swer

ing

ye

s

Reasons for Making Acquisitions

0%

20%

40%

60%

Industryposition

Productdiversification

Cost synergies Industryconsolidation

Geographicdiversification

Revenuesynergies

36

Why is your firm making acquisition(s)? (Choose 3)


9/21/2015

13

Has risk management become complacent?

37

0%

10%

20%

30%

40%

50%

60%


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)?

Per

cen

tag

e fo

r an

swer

ing

ye

s


Has risk management become complacent?

38

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)?

Per

cen

tag

e fo

r an

swer

ing

ye

s


0%

10%

20%

30%

40%

50%

60%

9/21/2015

14

Is the stock market overvalued/undervalued?

39

I believe that the stock market in my country is:P

erce

nta

ge

for

ove

rva

lued

/un

der

valu

ed


0%

10%

20%

30%

40%

50%

60%


overvalued undervalued

Expected Wage Growth

4.50%

3.90%

3.30% 3.30% 3.30% 3.30%3.00% 2.90% 2.90%

2.30%

‐0.10%

‐1%

0%

1%

2%

3%

4%

5%

41

Relative to the previous 12 months, what will be your company's PERCENTAGE CHANGE in Wages and Salaries during the next 12 months?


9/21/2015

15

Return on Assets (ROA)

42

0%

2%

4%

6%

8%

10%

12%

14%

US Europe Asia Latin America Africa

Approximate ROA in 2014 Expected ROA in 2015


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

43Perspectivas de Negocios en Latinoamérica Duke University / IMEF / CFO Magazine Aug 2015

9/21/2015

16

From 2014 Q2



05

10

15

20

25

Cas

h /

Ass

ets

(%

)

1970 1980 1990 2000 2010

Average Cash/Assets (1970 – 2012)All firms on Compustat

Source: Graham and Leary, “Corporate Cash”

9/21/2015

17


Cash/Assets (1920 – 2012)

Only NYSE

AddAmex

Add Nasdaq

05

10

15

20

25

30

Cas

h /

Ass

ets

(%

)

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Average Aggregate

Source: Graham and Leary, “Corporate Cash”

Global Business Outlook Duke University / FGV / CFO Magazine Mar 2015

Intention to Deploy Cash Reserves

77

0%

20%

40%

60%

80%

100%

US Europe Latin America Asia Africa

Yes No

Is it likely that your firm will begin to deploy its cash reserves during the next 12 months?

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

9/21/2015

18

If Deploying Cash Reserves, on What?

Global Business Outlook Duke University / FGV / CFO Magazine Mar 2015 78

0% 10% 20% 30% 40% 50% 60% 70%

Research and development

Marketing and advertising

Increase hiring

Dividends or share repurchases

Pay down debt/line of credit

Acquisitions

Capital spending or investment

51.2% 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 20% intends to increase hiring.

If Not Deploying Cash, Why Not?

Global Business Outlook Duke University / FGV / CFO Magazine Mar 2015 79

0%

10%

20%

30%

40%

Do not need cashreserves as a source

of funds

Need cash asliquidity buffer

Lack excess cash todeploy

Save cash as drypowder for future

investmentopportunities

Holding cash untileconomic

uncertainty declines

48.8% of Latin American firms are NOT planning to spend cash reserves. Among these firms …

Nearly 30% say they lack excess cash to spend; another 30% say they have alternative sources of funds

More than 20% indicate that they need to hold their cash reserve until economic uncertainty declines

9/21/2015

19

Uncertainty and Business Planning—Econ Conditions

93

Does Uncertainty about Economic Conditions Affect Your Business Planning?

63% 62%

36%

12%

0%

10%

20%

30%

40%

50%

60%

70%

Reduce/DelayHiring

Reduce/DelayCapital Spending

Increase cashholdings

No real effect

Global Business Outlook Duke University Mar 2015

global business outlook - alpha architect · 2018. 9. 7. · 9/21/2015 1 global business outlook a...

Documents