- Ongoing COVID-19 pandemic disruptions, geopolitics and climate change weigh on strategic investment plans
- Despite inflation concerns, respondents plan to increase capital investment to protect future growth
- M&A as a key approach to expand capabilities, access new talent and transform their business
Asia-Pacific (APAC) CEOs are set to invest to get ahead of the interrelated threats of ongoing COVID-19 pandemic-related disruptions, increasing geopolitical tensions and climate change. This is according to findings of EY CEO Outlook Pulse - October 2022, which surveyed the views of 760 global CEOs (including 30 from Singapore) on their prospects, challenges and opportunities.
Forty-eight percent of the surveyed CEOs in APAC (Singapore 43%) identify a continuation or return of COVID-19-related disruption, including new lockdowns and supply chain pressures, as the greatest risk to their business, higher than for CEOs in the Americas (43%) or Europe (41%). Inflation is also top of mind, with the majority of CEOs (APAC 68%, Singapore 73%) forecasting it will negatively impact their earnings and growth. With prices rises across major inputs, including, labor, energy and raw materials, 20% of APAC CEOs (Singapore 43%) consider inflation as the single-biggest threat to their companies’ revenue and margins.
Contributing to the challenges ahead, 38% of APAC respondents (Singapore 27%) pointed to geopolitical tensions and 35% to climate change (Singapore 40%) as critical risks to growth. As a result of geopolitical challenges, almost all respondents are reshaping their investment plans and operations. According to the EY survey, geopolitical concerns mean CEOs are actively reconfiguring their supply chains (APAC 48%, Singapore 40%), delaying a planned investment (APAC 43%, Singapore 47%) or relocating an operational asset (APAC 39%, Singapore 27%); while a significant proportion have stopped a planned investment (APAC 26%, Singapore 43%) or are exiting businesses in certain markets altogether (APAC 25%, Singapore 33%).
According to an earlier EY-Parthenon research, Transformation in Southeast Asia: Four archetypes of outperformers, this approach of delaying or stopping planned investments can be value destructive. In fact, the EY-Parthenon research found that companies that proactively undertook transformative actions as they worked through disruptions saw business outperformance compared to reactive transformers.
Sriram Changali, EY Asean Value Creation Leader says:
“Business leaders around the world and in Singapore indeed face a persistently complex business environment. However, while corporates may need to consider reshaping their business model or operations to deal with the disruptions, that does not necessarily mean stopping or delaying a business transformation initiative. In fact, EY-Parthenon research has shown that the reverse is true: during disruptions, companies that deepen their transformation efforts to manage the challenges actually also position the organizations optimally for long-term value creation.”
APAC and Singapore CEOs stay future-focused with plans for M&A
Despite the geopolitical and economic headwinds, the CEOs surveyed are not holding back on their investment plans, with a significant majority (APAC 66%, Singapore 76%) intending to increase capital investment versus just 13% in APAC and Singapore who plan to reduce.
Half (50%) of the surveyed CEOs in APAC (Singapore 67%) plan to pursue an acquisition in the next year while 42% of APAC respondents (Singapore 23%) plan to be active on all fronts, looking to acquire, divest and enter new joint ventures or strategic alliances. When it comes to their next transaction, more than a quarter (APAC 26%, Singapore 33%) of respondents said that this will be driven by the need to invest in an early-stage business to enhance their existing portfolio and access new talent, and 17% of APAC respondents (Singapore 13%) said that they will look to acquire a business in an adjacent sector to open new growth avenues.
Andre Toh, EY Asean Valuation, Modelling and Economics Leader says:
“With the rising interest and inflation rates, companies are seeing that debt and capital will become more expensive. On the same note, valuations will be more favorable, which is good news for companies that are looking to acquire.”
“In Southeast Asia, a significant proportion of businesses are conglomerates. This is an opportune time to ‘right size’ the organization. There are still substantial amounts of dry powder available, and investors are seeking the right assets to place their dollar on. These means that companies in Singapore and Southeast Asia should leverage this opportunity to divest non-core assets to build up their capital and focus on and acquire businesses that can enhance the value of the broader organization.”
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