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Confidence replaces defensive strategies as CFOs advocate risk Featured
27 October 2013 Posted by 

Confidence replaces defensive strategies as CFOs advocate risk

By Kate Hill, Deloitte Western Sydney

SPRING has certainly sprung and with it a rebound in confidence amongst Australia’s least exuberant group, chief financial officers (CFOs).

Typically these guys play it safe, so when they say things are looking and feeling better the rest of us can be pretty sure we are in a good place.

The latest edition of the Deloitte Quarterly CFO survey reveals confidence amongst CFOs has rebounded to its highest level since early 2011, driven by the end of a minority Federal Government and strengthening economic indicators from Europe, North America and China. 

The net percentage of CFOs who felt more optimistic about their company’s future financial prospects than they did three months ago, has surged to 41% up from minus 11% last quarter.

Even more encouraging is the fact that 38% of CFOs believe now is a good time to take more risk onto their balance sheets, the highest level in two years.

This could be an early sign that the defensive strategies which have prevailed post the global financial crisis, could soon be replaced by more proactive growth strategies such as mergers and acquisitions (M&A).

Here at Deloitte we are starting to see an uptick in M&A activity, a significant rise in companies looking to access the IPO market and the amount of inbound capital looking for acquisitions in Australia is at its highest level since the GFC. In terms of Western Sydney, we are seeing the most activity from Chinese interest in the real estate sector and other privately held assets in the $100-200 million range.

After a long slog, confidence is back in fashion amongst Australian CFOs and some may say even consumers are feeling more positive about the economy, albeit things remain fragile so an unexpected economic shock like could quickly put the dampener on things again.

Much like businesses, Australian consumers have been carefully looking after their cash, paying down debt and getting their personal balance sheets in order.

Combine this with low interest rates and people are starting to feel wealthier, at the same time low interest rates will be good news for the finance sector, as well as for retail and homebuilding.

New South Wales wasn’t a big beneficiary of the resources boom, but it is lapping up lower interest rates and a more moderate $A, while NSW’s portfolio of industries also looks better suited to the sectoral growth drivers of the next two decades such as wealth management, tourism and education.

The third edition of our Building the Lucky Country series, Positioning for Prospertity? Catching the next wave, found that whereas NSW struggled to capitalise on conditions over the past decade, it is superbly placed to cash in on the five super-growth sectors of agribusiness, gas, tourism, international education and wealth management.

During the last decade NSW was caught on the wrong side of the two-speed economy. The rise of emerging Asia generated a burst of mining construction projects, most of those were in other states – meaning that many of the benefits of the boom went elsewhere.

At the same time the rise of Asia underpinned a decade of relative strength in Australia’s interest rates and exchange rates.

Those high interest rates were particularly bad news for Sydney – home to half the financial sector businesses in Australia – and meant that NSW’s families had to fork out more to finance their outsized mortgages. Similarly, the $A’s strength penalised NSW’s farmers and manufacturers, as well as its tourism operators and higher education sector.

The last decade saw NSW lose ground as a share of the Australian economy, dropping by a tenth (from 34.3% in 2000-01 to an estimated 30.6% in 2012-13). However, Asia’s impact on Australia is changing – and it is changing in a way that particularly plays to NSW’s strengths.

For Australia as a whole, the five super-growth sectors could be as big as mining but for NSW, the five super sectors outweigh mining by a factor of two and a half. That is because all five super-growth sectors identified by Deloitte hold a strong presence in the NSW economy – effectively positioning the state for future prosperity. Collectively, Deloitte estimates the five super sectors will be a larger share of NSW’s economy than of any other State or Territory.

All of which is great news for Western Sydney, home to University of Western Sydney (international education), Blue Mountains (tourism), wealthy private families of Asian descent (wealth management), food production and manufacturing (agribusiness) and coal seam gas reserves (gas).

These five super-growth sectors, worth an extra $250 billion to the national economy over the next 20 years, hold the key to Australia’s future prosperity and Western Sydney is ideally positioned to take more than its fair share.

If that doesn’t make you feel more confident about living and working in Western Sydney, then nothing will!

Contact Kate at khill@deloitte.com.au



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