Asian chief executive officers have been the most optimistic in the world since the breakout of the global financial crisis, but a recent survey shows that optimism is waning.
The survey of 2000 global members of the Young Presidents Organization indicates that the YPO Global Pulse index for Asia edged lower by 0.2 points in the fourth quarter of 2011 to 60.7, significantly lower than the high 60s of earlier quarters going back to 2009, soon after the breakout of the global crisis.
From mid-2009 through the third quarter of 2010, Asian confidence was roughly 10 points higher than the global index. Since then, the gap has steadily narrowed, and now for the first time, Asia weighed in slightly lower than the global index average. Asian confidence at 60.7 in this latest reading trails Canada (64.4), Latin America and Africa (both at 63.6), and the United States (62.2).
The Chinese government is putting on the brakes, imposing lending restrictions, and its clearly reflected in our results, says Stanley Szeto, the incoming chairman of the Hong Kong chapter of YPO, which has 19,000 members globally (CEOs who are below the age of 50), including more than 1000 in Asia and 80 in Hong Kong. People were used to easy credit, and all of a sudden its no longer so easy. So people are feeling a bit uneasy.
Paul Schulte, Hong Kongbased global head of financial strategy and Asia banks research at CCB International Securities, a subsidiary of China Construction Bank, estimates that Chinese regulators have sucked up $700 billion in liquidity from the financial system in the past 12 months. This would be in addition to the 4 trillion yuan stimulus the government pumped into the economy in 2009, which helped China to drive growth in excess of 10 percent both that year and in 2010, cushioning the entire Asian region from the worst of the global crisis.
That stimulus, however, also caused property prices to triple in major Chinese cities and sent inflation up to nearly 7 percent, the highest in nearly a decade, causing concerns among Chinese regulators who subsequently began mandating banks to draw in credit lines in an effort to prevent the economy from overheating.
The YPO Global Pulse, which was released early February, is the only CEO economic sentiment survey to span the globe on a quarterly basis, capturing answers from more than 2,000 CEOs representing companies of all sizes around the world, including those in investment banking and financial services.
During the past three quarters, the drop in confidence has been relatively broad-based with survey participants in China, India, Singapore, South Korea and Thailand all reporting substantial declines during that period. The notable exception was in Japan, where confidence rose from a tsunami-depressed level of 46 in the first quarter of 2011 to its current level of 55.4.
Still, conditions are expected to improve after deteriorating in the past six months. When asked to evaluate current business conditions versus what was expected six months ahead, CEOs were less downbeat. For example, 38 percent expected conditions to improve six months down the road compared with 34 percent who felt that way one quarter ago. More importantly, only 23 percent thought conditions would worsen during that period of time; in the previous quarter 35 percent thought that might be the case.
Looking ahead 12 months, the YPO Sales Confidence index for Asia fell 4.6 points to 66.1. While this remains a relatively robust reading, it is 10 points lower than it was this time last year. Furthermore, instead of being 5 to 10 points higher than the global sales index as it was every quarter heretofore, it now lags it by 1.5 points.
The survey also looked at various other factors, including employment confidence and investment confidence.
The YPO Employment Confidence index for Asia was unchanged in the fourth quarter at 59.2, although down from its high point of 64.4 in the first quarter of last year. Thus, hiring prospects have deteriorated in recent quarters to the same level as the global reading of 59.0.
Asian CEOs expect fixed investments will rise slightly, however. The YPO Fixed Investment Confidence index for Asia rose 0.4 points in the fourth quarter to 66.7. That is just 3.4 points lower than the peak level of 70.1 attained in the first quarter of last year. The current level is 5.3 points higher than the global investment reading of 61.4 and indicates that CEOs in Asia continue to have the worlds most ambitious capital spending plans. Yet the gap relative to the rest of the world has narrowed somewhat as other regions reported bigger gains.
Even amidst a combination of country-specific challenges across Asia, including concerns about inflation, cost of capital, and in some cases, election or regime issues, CEO sentiment in the region continues to be decidedly optimistic, albeit with larger doses of caution baked in, says Szeto, who is the CEO of Lever Style, a Hong Kongbased garment manufacturer. While CEOs indicate a confidence in their own abilities to manage their companies, they are wary of economic uncertainty beyond their control.
After declining for three straight quarters, the YPO Global Confidence index rebounded in the fourth quarter of 2011, climbing 3.2 points to 61.2. Confidence was up in every region except Middle East/North Africa, non-EU Europe and Asia. It was largely buoyed by the Americas, where confidence levels jumped more than 4 points in Canada, the United States and Latin America.