1. Asian Business Outlook Part of the Global Business Outlook
A joint survey effort between
Duke University,
PwC China
and
CFO magazine
Asian Business Outlook Duke University /CFO Magazine June 2017

2. Top Concerns of Asian CFOs1.
Economic Uncertainty 2.
Difficulty attracting qualified employees 3.
Currency risk 4.
Government policies 5.
Employee productivity 6.
Weak demand for product/services 7.
Data security 8.
Employee morale 9.
Geopolitical/Health crises
10.
Access to capital
Asian Business Outlook Duke University /CFO Magazine June 2017

3. Business Optimism Index
Asia registers strong growth in optimism in June 2017, with notable gains in India, China, Singapore
Global Trends
June 2017 Response
Country Business Optimism Index
Country / Region
Own-Firm Business Optimism Index
Within Asia itself, there’s a varying level of business optimism.
China & India CFOs seem most optimistic.
CFOs are relatively optimistic about the future of their own firms in Asia.
Own firm-optimism is highest in China, India and then Australia.
CFOs in Japan and Singapore are less optimistic.
Own Company
Notes: Presented data are the mean value for each region or country, Scale from 0-100
Asian Business Outlook Duke University /CFO Magazine June 2017

4. Expected Product Price Inflation
Overall Asian inflation outlook is flat, as modest inflation expectations in India and Singapore is offset by negative expectations in Japan and China
Global Trends
June 2017 Outlook
Product Prices
Relative to other regions, inflation expectations currently are the lowest in Asia and highest in LATAM
Low inflation expectations in India and Singapore are tempered by negative expectations in Japan and China
Inflation expectations decline across many Asian countries
Within Asia, India has the highest expected inflation, even though the Indian outlook is down from last quarter.
CFOs in Japan and China expect prices of their products to fall, while CFOs in Singapore are expecting a reversal with a price increase this year
Notes: Presented data are the mean or median values for each region or country.
Asian Business Outlook Duke University /CFO Magazine June 2017

5. Expected Growth in Sales Revenue
CFOs in Asia expect modest growth in sales revenue of 3.6%, the lowest among the regions surveyed
Global Trends
June 2017 Outlook
Revenue
Asian revenue growth expectations are similar to those of the previous quarter
CFO’s revenue growth expectations remained flat/declined across all regions
Overall, Asian revenue growth expectations are the lowest, with Latin America a close second
China expects the most rapid revenue growth, followed by Singapore
Overall Asian growth is pulled down by Japan and India
China has the highest revenue growth outlook at 11.9%, followed by Singapore at 10.3%
India’s sales revenue expectations have dropped since last quarter’s survey
March 2017:
India already using median, mean = 20.1%
Notes: Presented data are the mean or median values for each region or country.
Asian Business Outlook Duke University /CFO Magazine June 2017

6. Capital Spending Plans
Asian capital spending is on the upswing, while Latin America and the US are scaling back on future expansion
Global Trends
June 2017 Outlook
Capital Spending
Capital spending plans on the rise
Asian CFOs expect rise in business spending growth, signaling a shift from the flat/decline in the past 2 quarters
Business spending is expected to increase in Europe and Asia, while expectations have dropped in the US, partially because of greater uncertainty in regulatory policy, and in Latin America, partially because of the Odebrecht corruption scandal and the economic crisis in Venezuela
Business spending is largely positive in Asia
Except China, many of the other Asian countries such as Japan, India, and Singapore anticipate growth in capital expenditures
In Singapore, expectations indicate a significant boost in capital spending
June 2017: China, using median. Mean=-10.34
Notes: Presented data are the mean or median values for each region or country.
Asian Business Outlook Duke University /CFO Magazine June 2017

7. Expected Change in Earnings
Earnings growth is expected to increase in Asia, in spite of significant decline in India’s earnings outlook
Global Trends
June 2017 Outlook
Earnings
Outlook positive for Asia and Africa
Asian earnings are expected to grow but at a lower pace compared to Africa
United States earnings expectations have softened this quarter, even more so in Europe and Latin America
Earnings growth outlook mostly positive across Asia, except India
Japan, Singapore and China anticipate earnings growth increases, while expectations outlook in India are negative
Notes: Presented data are the mean public company value for each region or country.
Asian Business Outlook Duke University /CFO Magazine June 2017

8. Fulltime Employment Outlook
Asian, European and US CFOs expect fulltime employment to grow moderately next year
Global Trends
June 2017 Outlook
# FT Employees
Employment outlook in Asia is positive but declining
Africa and Latin America expect no growth in employment
Europe registers positive growth in employment outlook, while the US saw a marginal increase q-o-q, now leading the world in employment growth expecations
CFOs in Africa are optimistic about reversing the negative outlook in FTE employment
India and China lead employment growth in Asia
China and India expect strong growth in fulltime employment, increasing relative to March 2017 levels and among the highest in Asia
Japan’s outlook is marginally positive at 0.7% but declined by 2.1 percentage points as compared to the previous quarter
June 2017: all mean
China: Median=12.55
India: Median = 10.94
Notes: Presented data are the mean value for each region or country
#FT=Number of Fulltime Employees
Asian Business Outlook Duke University /CFO Magazine June 2017

9. Notes: Presented data are the mean value for each region or country
Expected Wage and Salary Increases
While Asian wages and salaries are projected to increase by 3% over the next year, there are notable variations among its constituent countries
Global Trends
June 2017 Outlook
Wages & Salaries
Wage growth converging to 3-4% range across regions
Wage growth outlook is the highest for the US at 4.1%, lowest for Asia at 3%
Asia’s wage growth has been volatile, and June 2017 is the lowest it has been in the past 5 quarters
Europe saw the greatest uptick in wage growth q-o-q across regions
China’s wage growth much higher than other countries and regions
China’s wage growth outlook has risen from 7.7% during the previous quarter to 9.1% in June 2017
Wages in Japan are expected to increase by 1.1% over the next 12 months
Notes: Presented data are the mean value for each region or country
Asian Business Outlook Duke University /CFO Magazine June 2017

10. How Uncertain is the Current Business Climate?
Compared to the typical amount of uncertainty that your company faces, how would you rank the current level of uncertainty facing your firm?
Asian Business Outlook Duke University /CFO Magazine June 2017

11. Actions Taken in Response to Uncertainty
Compared to an average or normal amount of uncertainty, has the current amount of uncertainty about governmental policies and/or economic conditions led your firm to?
Asian Business Outlook Duke University /CFO Magazine June 2017

12. Best Practices When Uncertainty is High
What are the best practices for running a company when uncertainty is high about governmental policies and/or economic conditions?
Stay the course Continue to pursue core strategies built on the companies’ strengths. For the most part, don’t expand into new projects that stretch the firm in new directions. Focus on what you can control.
Be cautious Many firms pull back and operate very cautiously, making changes slowly. Some cut existing projects or cancel new projects but this is the exception rather than the rule
Focus on the short-term Focus on getting through the short-term, remain flexible, but don’t lose sight of long-run objectives
Reduce costs
Carefully study analyses and scenarios Have a plan and contingencies for how to react if various scenarios occur. Hire consultants or other experts.
Engage in risk management Be more active in risk management and hedging. Understand the economic outlook of various scenarios very well.
Accumulate liquid assets Reduce financial risk by accumulating liquid assets, especially cash. Don’t increase debt loads.
Take care of the customer Communicate more with, and take extra care of, key customers.
-The most common strategy is to “stay the course”.
By this companies mean not to become frozen into inaction, but to continue to pursue core strategies built on the companies’ strengths, focusing on what is under their control. For the most part, when uncertainty is high, this also means don’t expand into new projects that stretch the firm in new directions
-Focus on getting through the short-term, remaining flexible, without losing sight of long-run objectives
-Many firms pull back and operate very cautiously, making changes slowly … some cut or cancel projects but this is the exception rather than the rule
-Reduce costs, though continue to take care of the core
-Be more active in risk management and hedging.  Understand the economic outlook of various scenarios very well.
-Many firms highlight the need to reduce financial risk by accumulating liquid assets, especially cash. Try not to increase debt loads.
Asian Business Outlook Duke University /CFO Magazine June 2017

13. Uncertainty About Policies/Conditions Slowing Expansion
About which if any of the following items is uncertainty (about policy details or timing, etc.) holding back your company's plans for expansion and new projects?
Health: delay hiring, except perhaps health experts
Regulatory: wait and see, monitor til dust settles
Econ: delay investment, and a little less so: reduce hiring
Tax: delay investment
Asian Business Outlook Duke University /CFO Magazine June 2017

14. Uncertainty About Policies/Conditions Slowing Expansion
About which if any of the following items is uncertainty (about policy details or timing, etc.) holding back your company's plans for expansion and new projects?
Asian Business Outlook Duke University /CFO Magazine June 2017

15. Hurdle Rates and Investment Decisions
What hurdle rate does your company use to evaluate investment projects? (red line)
Does your company pursue all projects that are expected to earn a return > the hurdle rate? (gray and blue rectangles)
Asian Business Outlook Duke University /CFO Magazine June 2017

16. Asian Business Outlook Duke University /CFO Magazine June 2017
Why Not Pursue All Value-Enhancing Projects?
What prevents you from pursuing all projects that are expected to earn a return > hurdle rate?
Asian Business Outlook Duke University /CFO Magazine June 2017

17. Why Not Pursue All Value-Enhancing Projects?
What prevents you from pursuing all projects that are expected to earn a return > hurdle rate?
Asian Business Outlook Duke University /CFO Magazine June 2017

18. Why Not Pursue All Value-Enhancing Projects?
What prevents you from pursuing all projects that are expected to earn a return > hurdle rate?
Asian Business Outlook Duke University /CFO Magazine June 2017

19. Weighted Average Cost of CapitalUS
Europe
Asia
Latin America
Africa
What is your company's overall weighted average cost of capital (WACC) for 2017?
10.6
8.8
9.3
11.7
13.4
What cost of debt do you use in your WACC calculation?
7.1
6.7
6.5
12.2
Cost of equity?
11.8
10.7
8.2
13.7
Approximately what proportion of debt financing do you use in your WACC calculation?
36.4
30.9
29.8
33.4
28.3
Asian Business Outlook Duke University /CFO Magazine June 2017

20. WACC vs Hurdle Rate
Asian Business Outlook Duke University /CFO Magazine June 2017

21. Asian Business Outlook Duke University /CFO Magazine June 2017
Why Do You Set Your Hurdle Rate > WACC?
So that we choose only the best available projects
To ration – because we can’t pursue all projects
To account for riskiness of projects being evaluated
To account for costs not captured by WACC
To provide a margin of error in calculations and in investment outcomes
So that we earn excess return and increase firm value
Hurdle rate is cost of equity, to ensure we create value for shareholders
To help us select projects that are profitable every year
Expect cost of capital/mkt conditions to increase/change in near future
To preserve funding (because we have limited access to funds)
Asian Business Outlook Duke University /CFO Magazine June 2017

22. Asian Business Outlook Duke University /CFO Magazine June 2017
Chinese CFOs’ Opinion on Most Important Financial Functions
Which three finance functions do you believe are most important to your firm?
Asian Business Outlook Duke University /CFO Magazine June 2017

23. Asian Business Outlook Duke University /CFO Magazine June 2017
Japanese CFOs’ Opinion on Institutional Investors
In last two years, institutional investors have submitted a greater number of specific requests to our company, relative to before the governance reforms.
In the last two years, specific requests
submitted by institutional investors generally support the direction and types of policies our management team thinks are best for our company.
In the last two years, specific requests
submitted by institutional investors have influenced or changed our company's policies.
Asian Business Outlook Duke University /CFO Magazine June 2017

24. Return on Assets (ROA)
Return on Assets in Asia expected to remain the highest relative to other regions
Return on assets are expected to rise in all regions, relative to 2016
Regional ROAs expected to rise between 1.0 and 1.4 percentage points in 2017 versus 2016
CFOs in most Asian countries expect ROA to be same or higher in 2017 relative to 2016
CFOs in China expect the highest ROA in 2017 among Asian countries while Japan
Asian Business Outlook Duke University /CFO Magazine June 2017

25. Asian Business Outlook Part of the Global Business Outlook
A joint survey effort between
Duke University,
PwC China
and
CFO magazine
Asian Business Outlook Duke University /CFO Magazine June 2017