CFO optimism holding, risk appetite up on back of upbeat local & international economies
7 February 2018: Bolstered by upbeat economic outlooks at home and abroad, Australian CFO optimism continues to hold strong. And according to the latest edition of Deloitte’s CFO Sentiment report, reduced financial volatility is also increasing risk appetite,
Key points from the H2 2017 survey behind the report – A strong global economy underpins rising optimism and risk appetite – conducted in November and December, include:
- A net 71% of CFOs are optimistic about the financial prospects of their companies
- Net positive confidence results have now been recorded since H1 2013
- A record 62% are comfortable with taking on more balance sheet risk
- 63% are concerned about the impact of further regulatory changes
- 42% believe innovation is their number one strategic planning consideration.
Global and local outlooks support optimism and risk appetite
Deloitte CFO Program Leader Stephen Gustafson said: “Entering the new year, CFO sentiment remains optimistic, although slightly down from mid-2017, alongside a positive, growth-friendly economic outlook, and a lift in both government and business investment and employment.
“And as far as 2018 is concerned, the outlook looks like a case of more good news to come. CFOs expect interest rates to stay where they are, they see the Australian dollar moderating, and they see a positive macroeconomic outlook supportive of business activity.
“They are also upbeat about financial market conditions. Sentiment around the stock market was the star performer, with net optimism reaching 42%, the highest measure on record since the beginning of this survey in 2009.
“Uncertainty, of course, remains a constant, but with these favourable economic fundamentals in place, CFOs are also pretty strident when it comes risk. More than 60% are open to taking on more balance sheet risk, 13 points up on H1 2017, and another record high since our sentiment survey began.”
Regulatory change, energy reform, Trump, innovation and expontential technologies
In addition to the Sentiment survey’s standard questions around confidence and optimism, respondents also considered a range of other business issues.
“Despite CFOs becoming more comfortable with uncertainty, they are still keeping an eye on a range of issues important to future business performance. Regulatory change and its implications is at the top of this list, and 63% indicated this would be important for their company in coming years, compared to only 29% in the first half of 2017,” Gustafson said.
“This shift in concern is likely due to a recent flurry of regulatory activity in the financial sector, including greater powers for ASIC and APRA, the Bank Executive Accountability Regime, legislation impacting financial advisory and life insurance activities, and, of course, a royal commission which covers the financial sector more broadly.”
“CFOs did not believe recent developments in the energy sector around security of supply would affect their investment profiles, with nearly 70% indicating the energy reform debate had not influenced major investment decisions.
“While the election of US President Trump has added to the global volatility equation, CFOs felt the impact of Trump policies on their specific activities would be minimal earlier in 2017. However, recent developments, including the introduction of corporate tax cuts and escalating geopolitical tensions with North Korea, have forced some respondents off the fence, with more feeling either negatively or positively about the direction of US policy.”
CFOs ranked digital disruption and innovation among the top five issues facing their firms in the next two years, and half also recognised that exponential technologies, such as data analytics and automation, will drive growth.
“More than 40% agreed that innovation is their number one consideration in strategic planning, followed closely by a range of other economic factors, such as the Chinese economy, interest rates and the housing market,” Gustafson said. “But they are also grappling with the next steps toward successful innovation, especially challenges in training and upskilling their employees to make the most of technological opportunity.
“Another key question CFOs are grappling with is what role they can play in catalysing innovation strategy. According to survey respondents, they are less focused on the capital requirements of new technologies and more concerned about how workers will adapt to the changes.”