Australia’s chief executives and their investors are suddenly quite out of step. The sharemarket is at its highest level for nearly 18 months after a solid three-month rally, but our latest CEO Pulse survey shows that they have become a lot more pessimistic.
And they’re more troubled about both the economy and about their own businesses, although less so about the latter.
The percentage that is pessimistic about the economy generally has gone from 47 to 57 per cent in three months, while the pessimism about their own businesses is up from 19 to 21 per cent.
But when you drill into the detail there are quite big shifts in specific aspects on how they see the future. Twenty-three per cent expect to see a decline in profit, compared with 16 per cent last quarter, 28 per cent expect to cut capex (20 per cent last quarter), 37 per cent expect to cut operating expenditure (28 per cent) and 35 per cent will cut staff (31 per cent).
The key driver of investor optimism has been a shift in sentiment about Europe since June: average price earnings multiples on European stockmarkets have expanded from 8.5 to 10.5 times since June according to Morgan Stanley, which has powered a 15 per cent stockmarket rally despite a fall in earnings forecasts.
There’s also growing investor optimism about the United States’ economy as well as some relief that China is not going through the hard landing that many had feared.
In Australia the story has been similar, but subtly different. Here yield compression caused by Reserve Bank rate cuts and investor enthusiasm for income has produced a 21 per cent rally by bank stocks, while the resources sector is up just 7.6 per cent. The broad ASX index rally is simply an average of these two.
Meanwhile CEOs are more worried. For the second quarter in a row they are being kept awake at night by the need to achieve top line revenue growth, according to our latest CEO Pulse survey. A year ago it was all about finding staff; now it’s about finding growth.
Interestingly, they’re not blaming the government quite as much they have done in the past – the average score out of 10 for the Gillard government’s performance is up slightly from 2.8 to 2.9 … still rather low and a lot less than the 5.4 out of 10 they gave in our first survey in February 2010 – before the last election.
Research design and analysis for the CEO Pulse survey was conducted by GA Research and fieldwork by AFS. The sample comprised 105 CEOs of organisations with an Australian turnover of $100 million or more who opted to participate in a five minute survey conducted over the phone or online between Tuesday 9 October 2012 and Friday 19 October 2012.
Follow @AlanKohler on Twitter.
CEO PULSE: Worry across the boards
Despite recent sharemarket gains, pessimism is on the rise among Australia's business leaders who are concerned about how they will generate top line growth.
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