Latin American CFOs are less optimistic than a year ago: while just one year ago they were the most optimistic financial executives in the world, that enthusiasm has tempered a bit. Latin American CFOs now rank behind their counterparts in Asia, and have roughly reached levels of optimism seen in the United States. These are the results of the latest Global CFO Survey conducted by Duke University Fuqua School of Business.
As growth rates have slowed amid lower commodity prices and reduced global demand, so optimism has fallen, says John Graham, Professor of Finance at Duke University. “Latin Americans seem to be taking a pause in their outlook, no longer expecting the high growth they saw in the past decade,” he adds.
However, there is still diversity among the region. The study shows that overall declines in optimism were led by declines in Chile and Peru vis-à-vis last year, thought they still remain relatively optimistic compared to their neighbors, a fact that is reflected both in their outlook for their country’s economy and for their business. According to Graham, Chilean CFOs are uncertain what the incoming Bachelet administration will mean in terms of new regulation and taxes.
Brazilian CFOs are the least optimistic about their economy – a big comedown from last year; surprisingly Brazilians are even less optimistic about their country’s outlook than CFOs in neighboring Argentina. However, that fact is reversed when it comes to their outlook for their own business, where Brazilians are among the region’s most optimistic – surpassing not just CFOs from Argentina, but from Colombia and Ecuador as well. “This divergence could be because CFOs are confident they know the country and how to navigate any challenges,” Graham said.
Mexico however has hardly seen a dip last year, and remain the most optimistic year over year. Fully 80 percent of Mexican CFOs say they are optimistic about their country’s and business’s performance. Graham says this is not an increase over last year, rather that optimism in other countries has decreased.
Other interesting findings are that almost a quarter of Latin American CFOs say their company plans to make an acquisition this year, and a third of those say it will be cross-border. Latin America is the primary destination for expansionfor 60 percent of them of Latin American companies, with the U.S. and Canada the target of 33 percent, and Europe 7 percent. This shows the rise of the multilatina, the increasing entry of Latin American companies into U.S. markets, and perhaps the “reverse” trend of Latin American countries entering Spain.
Among all the global CFOs, Latin Americans are most pessimistic about the tapering of the Federal Reserve’s quantitative easing policy. 40 percent of those surveyed said it had a somewhat negative or very negative effect on their company’s optimism for performance in 2014 – an amount similar to Asia, but far above concern in Europe and the United States. 68 percent of respondents also said uncertainty about government economic policies was delaying capital spending, and 54 percent said it was delaying hiring. This contrasts with the United States where companies responded to uncertainty by increasing cash holdings – a response only 18 percent of Latin American CFOs cited as a response.
A little less than half of Latin American CFOs also see a real estate bubble in their country, with more than 50 percent of Brazilians and Peruvians believing property prices are inflated. This contrasts with around 16 percent of U.S. respondents, and 20 percent of respondents, but a shocking 90 percent of Chinese respondents. The prospect of a “popped” real estate bubble in China could have serious consequences for the global economy – and Latin America in particular.
The Duke University Global CFO Outlook Survey delivers a quarterly questionnaire to CFOs across the world on optimism, expectations, and plans, allowing a comparison of the global financial landscape.