Growth back in focus among Southeast Asian corporates as market confidence rise
- Continued optimism in global and local economies
- Shift in strategy as SEA corporates seek growth and investment
- Bigger deals and intra-regional investments expected
Singapore, 26 November 2013 – Market sentiments in Southeast Asia (SEA) are at a two-year high as 60% of corporates in the region expressed confidence that the global economy was improving. This is a clear increase from the 49% who shared such sentiments six months ago, according to the latest SEA issue of the EY Capital Confidence Barometer released today. The survey of over 1,600 senior executives in 72 countries around the world, of which 127 were from SEA (Singapore, Malaysia, Indonesia, Philippines, Thailand and Vietnam), was conducted in September 2013.
In SEA, close to half (48%) of respondents believed that their local economies were improving, up from 39% who held such views six months ago. Confidence levels in Philippines, Thailand, Singapore and Vietnam were high while those in Indonesia and Malaysia were moderate.
Across the region, growth is a given among the executives. A higher proportion of SEA corporates – 45%, up from just 33% six months ago – believed that their local economies would grow by more than 3% in the next 12 months. This confidence is evident as an overwhelming 91% expected to maintain current headcount levels or create jobs in the year ahead.
Harsha Basnayake, Managing Partner for Transaction Advisory Services in Asean Region at EY says: “With 88% of SEA respondents expecting their local economies to grow and 51% expecting to create more employment, corporate confidence in SEA continues to be high. SEA respondents are also bullish about the global economy with signs of stability and growth in developed markets. However, this sentiment is not evenly felt across markets, with respondents from Indonesia and Malaysia, in particular, being more pessimistic in their outlook and expecting a decline in their local economic prospects over the next six months.”
“Nevertheless, the overall outlook for the region continues to remain positive with 76% of the respondents indicating that the current regulatory environments are supportive of and conducive for growth and investment.”
Shift in strategy as SEA corporates seek growth and investment
SEA companies are shifting gears to a bolder corporate strategy. More than half (55%) indicated that growth would be their primary focus over the next 12 months. 58% of SEA corporates shared that they would use cash to fund growth, starting with inorganic strategies.
Harsha explains: “For over two years, companies have adopted more conservative strategies, where they focused primarily on cost containment and operational efficiencies. Then, growth was not a priority; maintaining stability was. When it came to managing their capital agenda activities, companies were more focused on optimizing and preserving their capital.”
“However, when you are doing business in a region that is continuing to grow and draw foreign investment, maintaining status quo is not sustainable. What we are seeing now is a clear shift in that strategy. SEA corporates are beginning to see that investing to grow is an imperative and not an option. There is clear headroom for businesses in our region to grow and consolidate, and hopefully more of our executives will begin to see that – and act.”
Deal-making back on the agenda with focus on bigger deals
There is strong evidence that M&A is back on the agenda for SEA corporates. Deal appetites have improved strongly, as 41% of SEA corporates intended to pursue acquisitions in the next 12 months with an interest towards for bigger deals (US$51m and above). This is a marked change from six months ago, where only 25% of SEA respondents were looking to pursue M&As, with expected size of US$50m or less making up the bulk of deals.
Respondents from Thailand and Singapore were most enthusiastic about M&A, where 55% and 50% of them respectively said they were planning to pursue acquisitions. 60% of SEA corporates expected deal volumes to improve over the next 12 months. This aligns current sentiments with deal fundamentals, where the expectations of SEA corporates on the quantity and quality of deal opportunities and deal closure rates, improved compared to six months ago.
Harsha says: “We are not into boom-time M&A activities as what was seen during the pre-crisis era. Instead, SEA companies are saying that they want to focus on growth through both organic and inorganic means. Therefore acquisitions are back on the agenda. Such a sentiment has not been seen since April 2012. With a strong emphasis on growth and access to capital across the markets continuing to be stable, many also expect deal volumes and values to increase.”
“This shift in sentiment is not unexpected. With growing inbound investment interest across SEA markets, there will be significant competitive advantage for those who recognize the consolidation opportunity and take action early. We are perhaps at the beginning of a shift in strategy. Only time will tell if such a strategy is sustainable. Those companies who can afford to act should do so to gain first-mover advantage,” Harsha adds.
Intra-regional investments favored
SEA respondents continue to show a strong appetite for investing in their own region. When asked for their top 10 preferred investment destinations, seven were SEA countries, namely Myanmar, Vietnam, Indonesia, Malaysia, Thailand and Singapore. Globally, long-time favorite Indonesia, and new targets Myanmar and Vietnam, were identified among the top investment destinations.
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Notes to editors
About the survey
The EY Capital confidence barometer is a survey of 1,600 senior executives from large companies around the world and across industry sectors. The objective of the Barometer is to gauge corporate confidence in the economic outlook, to understand boardroom priorities in the next 12 months, and to identify the emerging capital practices that will distinguish those companies that will build competitive advantage as the global economy continues to evolve. This is the ninth bi-annual Barometer in the series, which began in November 2009.
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