Singapore Pessimistic on 2013 Prospects, but Malaysia Ready for Deals and Profits

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--A one-size-fits-all approach to the industrial outlook for South East Asian countries in 2013 may miss identifying opportunities for market growth in various sectors and different countries. The size and dynamics of domestic markets, energy profiles and manufacturing bases have some common elements but combine in significantly different ways to affect various countries' and companies' readiness and potential for growth.

Countries and companies in the region have become more pessimistic about prospects for 2013 during the passage of the current year -where the problems of world markets have subdued demand for manufactured goods and key indicators, such as forecast auto production, have flattened after looking lively in the first half of 2012.

Although the consensus is that it will take at least a year for signs of real growth to show, it seems, at the time of writing this report, that China has managed as soft a landing as it could have hoped for out of the economic down turn with over 8% growth possible for 2013. That in itself could cause some positive contagion and tempt new investment by companies who have strong balance sheets and low gearing levels. There could come that moment in the cycle where companies' management start deciding to 'get in first.' Currently, Ernst and Young say the drive is to polish internal efficiency in their Southeast Asia Global Capital Confidence Barometer. (Ernst & Young's Capital Confidence Barometer is a regular survey of senior executives from large companies around the world.) "When the focus is on basics and stability, execution becomes a key to success. While the economic fundamentals of the Southeast Asia market have not changed, corporate sentiment has a significant bearing on the growth aspirations of our markets. At this time, corporate should focus on staying nimble and efficient while waiting for the right opportunities." Ernst and Young said.

The differently sourced statistical forecasts for the countries of the region have a common thread but vary to degree depending on when the last review and update was made. According to the latest International Monetary Fund (IMF) forecast, which was updated at the end of last week, China has a growth figure of 8.2% for 2013, whereas the Asian Development Bank (ADB), which was updated a couple of weeks earlier, has a growth figure of 8.1%.

For South Korea, the IMF has a growth figure of 3.6%, and the ADB 3.4%. The largest variance between the two sources is for Singapore, where the IMF has a 2013 growth rate of 2.9% and ADB 3.8%. Indonesia has the highest regional forecast growth rate of IMF 6.3% and ADB 6.6%. Thailand follows with IMF 6.0% and ADB 5.0%.

Many comments have been made on the recently released United Nations Conference on Trade and Development (UNCTAD) global foreign direct investment (FDI) inflows comparison between 2011 and 2012. Some of the country has had unpredictable growth rates, which represent a turbulent time for some economies. They do not necessarily indicate what FDI investment rate could be by the second half of 2013. Southeast Asian countries' balance sheets are solid in general, so they are able to weather a one-year downtrend in FDI.

East Asia (China, Hong Kong, Taiwan) saw an overall fall in FDI of 11.3%. Southeast Asia saw an overall fall of 5.4%. Thailand saw FDI grow by 62.1%., Indonesia incoming funds fell by 20.6% and Malaysia by 36.6%. Singapore FDI fell a marginal 1.9%.

Among the Southeast Asia respondents to the Ernst and Young Barometer, the most pessimistic views about the global economy are expressed from executives from Singapore. None of them saw any signs of improvement in the global economy, compared to 24% who thought differently six months ago. An overwhelming 85% of the Singapore respondents agreed that the global economy is going to continue to deteriorate for the next six months.

While optimism has reduced and realism set in, 42% of the Southeast Asia respondents indicated that there local economies are stable compared with 24% six months ago. There were 36% who indicated that their local economies were improving down from the 50% who expressed a similar sentiment six months ago.

The emphasis on growth has been overtaken by productivity, margin and cost pressures as well as heightened consciousness of risk management. Capital allocation was identified by 64% a significant focus.

Indonesia, which was a top investment destination six months ago, has held up well overall. Even if some of the economic messages are mixed, balance sheets have strengthened with 63% of Indonesian respondents indicating that there leverage is now below 25%, up from 41% six months ago.

Malaysia also sends an overall confident message with 42% of executives expecting to pursue acquisition opportunities within the next 12 months with a goal of improving profitability and accessing new markets. Half of the Malaysians also expect the number of deal opportunities to improve and closure rates to be high, up from 27% of respondents who held this belief six months ago. That sounds like an opportunity for some positive prospect contagion in the region.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.