OREANDA-NEWS. June 30, 2015. Chief financial officers (CFOs) in Singapore are the most pessimistic group in Asia Pacific, with only 37 percent expecting profit to rise in 2015 compared with the regional average of 73 percent, according to the Bank of America Merrill Lynch 2015 CFO Outlook Asia survey.

In a survey of CFOs across Asia Pacific, 53 percent of Singapore CFOs expected profit to decline during the year, more than double the regional average. A weak global economic environment and a sluggish domestic market are driving this sentiment.

“Being a small and open economy, Singapore is more exposed to developments globally. With uncertainties looming over the eurozone and China’s growth, coupled with difficult conditions at home, CFOs are finding it challenging to stay competitive,” said Gregory Seow, South East Asia head of Corporate Banking at Bank of America Merrill Lynch. “Companies are reviewing their investment and expansion plans, opting for a more defensive stance by reining in operating costs and pursuing opportunities to innovate and automate.”

Other key findings include: 

  • Financial management: With slowing growth and a more challenging domestic landscape, 83 percent of Singapore CFOs, the second-highest in the region, are looking to boost profitability by achieving greater operational efficiencies and reducing unnecessary costs.
  • Heightened financial risk: Eighty percent of Singapore CFOs cite U.S. interest rate movements as a key risk in the year ahead. This is twice the regional average of 40 percent.
  • Shoring up cash reserves: Eighty-seven percent of Singapore CFOs, the highest among those surveyed, are adopting a more defensive stance by opting to utilize surplus cash to increase their cash reserves. This compares to a regional average of 72 percent.
  • Decreased capex and cost of capital: In contrast to the rest of the region, more Singapore CFOs (47 percent) are expecting the cost of capital to decrease in 2015. This compares with the regional average of only 13 percent. Despite this, 30 percent of Singapore CFOs are expecting lower capital expenditure in 2015 than in 2014, compared with only 6 percent regionally who are forecasting that capital expenditure will be lower in the year ahead.

As expected, China featured heavily in the views of Singapore CFOs as the impact of slowing growth and higher costs in the country weighed on sentiment. Approximately half of the Singapore CFOs said they were considering a change in their China strategies. Of those, 64 percent said they had already moved their Asian headquarters out of China to another country in Asia in the past year, while 80 percent are contemplating moving at least part of their operations out of China in the coming year. Both figures are among the highest in the region.

In terms of foreign exchange (FX), more Singapore CFOs (77 percent) said they have exposure to the China renminbi (RMB) than any other currency. This compares to the regional average of CFOs with exposure to the RMB of 37 percent. Thirty-seven percent of Singapore CFOs said their RMB exposure was hedged.

“Singapore companies have significant businesses and investments in China,” added Seow. “Historically, there is a positive long-term view on the strength of the RMB, but as we can see from this survey, Singapore and the rest of ASEAN are becoming increasingly intertwined with what happens in China.”

Overall, the next three largest FX exposures for Singapore CFOs were the Malaysia ringgit, the U.S. dollar and the euro, but the survey found these were largely hedged.

The Bank of America Merrill Lynch 2015 CFO Outlook Asia survey includes the views of 630 respondents at the CFO or CFO-equivalent level within finance departments at companies. Now in its fourth edition, the survey offers insights into the strategies deployed by key financial decision makers across multiple industries and 12 economies in the region. Approximately 97 percent of respondents come from corporations with at least US\\$500 million annual turnover and represent a mix of multinational corporations and large local companies.

In Singapore, 30 companies participated in the survey with the largest group of respondents (18 companies) having annual global turnover of US\\$5 billion to US\\$10 billion. Other groups of respondents were from the real estate sector (10 companies), pharmaceuticals (six companies) and oil and gas (five companies). Companies from manufacturing, retail and telecoms were also represented.

To download the Bank of America Merrill Lynch 2015 CFO Outlook Asia survey, please click here.

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