CFO Innovation Survey: Don't Waste Crisis Gains

by Cesar Bacani, 21 January 2010

(Click here to download the full survey results)

What a difference one quarter makes. When we asked CFOs in September and October last year how optimistic they were about growth prospects for the economy where they were based, 61% said they were more optimistic than they were in the previous quarter, with 4% saying they were very optimistic.

We posed the same question again in December last year and January this year. This time, only 54% of you were more optimistic compared with the previous quarter, with 7% very optimistic. Not a steep fall overall – three percentage points down – but the decline is quite significant in some markets.

The level of optimism in China, for one, is down 11 percentage points to 69%. In Singapore, it has fallen 10 points to 70%. Hong Kong’s economy is still seen as having lukewarm prospects, with less than half (46%) of the executives based there saying they are more optimistic compared with the last quarter or very optimistic.

Reality Check

I don’t see this as a bad thing. I would even argue that CFOs and other finance professionals in Asia still have rose-coloured spectacles on when it comes to the region’s economic prospects.

True, asset managers like Hugh Simon of Hamon Investment Group expect Asian economies "to continue to post healthier GDP growth rates and build from the low base of 2009.” But one of the Asia economists I most respect, Dr. Jim Walker of Asianomics Limited, is far more cautious.

He believes that central banks will stop injecting cheap money into financial systems and claw back some of what they have already given out even as governments raise taxes to plug gaping budget deficits. “The result, in our view, will be renewed weakness in asset prices and renewed weakness in economic activity,” says Walker. “Far from the crisis being over we expect to see a resumption of major strains in the system.”

These fears may explain in part the waning CFO optimism in China, whose central bank is moving more aggressively than most people anticipated to tighten monetary policy. Beijing has raised reserve requirements for its banks and analysts expect more tightening measures in the coming weeks and months.

Nobody really knows what’s going to happen, of course, but on balance, my money is on Jim. His timing is not always perfect – he was wrong in forecasting a slowdown in China’s economy last year, for example – but his analyses have proved remarkably accurate over the long term. Formerly chief economist at CLSA Asia-Pacific Markets, he famously predicted the fall of the baht and the subsequent 1997 Asian financial crisis and was out with early warnings on last year’s global crisis.

Beware the Backsliding

The danger with being overly optimistic is that the company may be lulled into thinking that the crisis is over and it’s back to the old happy days for financial management.

“In my opinion, the worst thing that can happen,” Germon Knoop, Vice President, Finance, Asia Pacific at BT Global Services, recently told CFO Innovation, “is that you just say that everything is fine and rosy again . . . and start raising salaries, hiring more people and investing in projects which are not profitable immediately but will come later. Then you’d be eroding all the gains you made last year and you’d be back to where you were before.”

Comment on this article

Accounting and Regulations

CFO innovation Asia Accounting and Regulation the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Accounting Regulation, IFRS, US GAAP, Tax, investor relations, corporate governance, Corporate Law, Financial Regulators, Internal Audit, Audit, Corporate Law.

Auditing, Investor Relations, Law and Compliance, Tax

Finance and Banking

CFO innovation Asia, Finance and Banking the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Corporate Finance, trade finance, treasury and risk management, capital expenditure, Banking, mergers and acquisitions

Cash and Liquidity Management, Corporate Finance, Insurance, Treasury Management

Management

CFO innovation Asia the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Finance Management, Corporate Governance, Human Resource Management, Compensation and Benefits, Mergers and Acquisitions, Professional Development, Corporate Real Estate, Risk Management, Budgeting and Forecasting, Business Process Management, Business Process Reengineering, Outsourcing.

Budgeting and Planning, Business Expense Management, Human Capital Management, Outsourcing and Shared Services, Risk Management

Metrics

Corporates, Financial Services

Technology

CFO innovation Asia Technology the Asia Pacific resource center for senior finance executives, daily news, analysis, best practice and case studies in Finance Systems, Business Intelligence, EPR, Accounting software, CRM, Cloud Computing, Telecommunications, Business Process Outsourcing, Business Process Management Software.

Business Intelligence, Enterprise Software and Systems, Financial Systems, Security

CFO innovation ASIA