Unless your company is named HNA or Toshiba, you should have closed 2017 with a big bang in revenues and earnings. At least, that’s the expectation of your shareholders and the markets – and the equity analysts and business media that feed those hopes.
And why not? “We started 2017 with consensus expectations for circa 12% earnings per share growth,” wrote Toby Hudson in December. He is Head of Asian ex Japan Equity Investments at global investment manager Schroders. “As we write today, however, it looks like we will actually see 22%+ EPS growth, a far more dynamic outcome.”
Are the “Goldilocks” backdrop of moderate economic growth and low inflation, and the synchronized expansion of developed and emerging markets going to continue in 2018? The answer is yes, says Goldman Sachs
Asian equities have demonstrated very strong earnings delivery and consistent upgrades to expectations, he noted, boosting total returns for regional stock markets in 2017 to around 40% in US dollar terms, among the best five calendar-year returns in the last 30 years. The MSCI Asia Index, with 968 constituent stocks, ended 2017 up 33% – from just 4% in 2016.
In theory, all this should be good news for CFOs. Unless your company expanded too aggressively like China’s HNA and LeEco or got mired in accounting scandals like Japan’s Toshiba, you should be finalizing the annual report right about now and smiling at how happy stakeholders will be when you announce the financial results.
But the great results are also a burden going forward, even for finance leaders in privately held companies and state-owned enterprises. Everyone now assumes all the boats have been lifted in the rising tide of 2017 – and that the trend will continue into 2018.
Woe to the CFO who reports lackluster results for 2017 without a convincing explanation of what happened. The great expectations can prove to be a burden for CFOs in 2018 as well.
What to do? First, know what the macro-economic growth expectations are for the global economy and the markets where your company operates this year. Are the “Goldilocks” backdrop of moderate economic growth and low inflation, and the synchronized expansion of developed and emerging markets going to continue in 2018?
The answer is yes, says Goldman Sachs. “For the first time since 2010, the world economy is outperforming most predictions, and we expect this strength to continue,” says the US investment bank. “Our global GDP forecast for 2018 is 4%, up from 3.7% in 2017 and meaningfully above consensus. The strength in global growth is broad-based across most advanced and emerging economies.”
That’s broadly what the World Bank expects as well, though it is less exuberant than Goldman Sachs. In a report released this week, it predicts 3% global growth in 2017 and 3.1% in 2018 “as a continued recovery in emerging market and developing economies (EMDEs) more than offsets a slight moderation in advanced economies.” Like Goldman Sachs, the bank notes that the expansion is broad-based.
The economies of East Asia and Pacific, comprising China, Indonesia, Malaysia, Philippines and Thailand, among others (but not Japan, Hong Kong and Singapore, which are categorized as advanced economies), are forecast to expand by 6.2% in 2018, after an estimated 6.4% spurt in 2017.
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