RBC Capital Markets survey: world's executives expect slow
recovery; China to lead in market growth and stability
Current anxiety and uncertainty fostering "creative
tension" and positive momentum in markets
NEW YORK, October 1, 2009 — Despite signs of economic revival,
the world's finance executives fear a slow, weak recovery,
are uncertain about the economy's direction and anticipate
major changes in borrowing sources and the relative growth
and stability of countries' capital markets, according to
a new RBC Capital Markets survey of 736 senior finance executives
conducted by the Economist Intelligence Unit. The executives
are from commercial and investment banks, hedge funds, private
equity firms and non-financial companies which raise money
in the capital markets.
Few executives (6 per cent) surveyed expect a sharp economic
rebound in the next six months, with growth returning to previous
levels over the next two years. A solid majority (58 per cent)
expects a gradual economic recovery over the next year, with
global growth resuming at a below-trend rate over the following
year. Another quarter (24 per cent) does not expect a meaningful
recovery for at least one year, followed by negligible growth
at best. Ten per cent expect a prolonged period of global
economic weakness lasting at least two years.
"Finance executives believe that full recovery will
be a slow, difficult process," said Marc Harris, co-head,
Global Research, RBC Capital Markets. "However, one of
the benefits of the current climate of anxiety and uncertainty
is that it produces a creative tension that can help make
markets. When you have both motivated buyers and motivated
sellers, you have the potential for positive momentum in the
markets. The huge moves in the equity markets since March,
in spite of recession in the broader economy, are proof of
A third of executives (30 per cent) think the U.S. dollar
will lose its reserve currency status - not in a generation,
but within the next five years. Executives also believe the
dollar's successor may come from far away: nearly half (47
per cent) of banks, hedge funds and other capital providers
said they have the most confidence in the growth and stability
of China's capital markets over the next two years. The U.S.
ranks third, trailing not only China but India as well. Interestingly,
there was a divergence in opinion between capital providers
and capital raisers, with the latter group most confident
in the U.S. capital markets followed by China and India. Among
all survey respondents, China led the way, followed by the
U.S. and India.
Amid concerns about a muted recovery and weaker growth, more
than half of executives (51 per cent) believe that corporate
profit margins and returns on capital will not return to pre-crisis
levels for at least five years. Few expect a quick rebound
for the capital markets, with nearly three-quarters saying
that transaction volumes over the next year will remain the
same or shrink over the next 12 months for IPOs, secondary
market offerings and investment-grade and high-yield debt.
Only M&A activity is projected to grow, and even that
"It's hard to overstate the impact of the credit crisis
on the capital markets, even for seasoned professionals. What
we are seeing is a fundamental re-examination of traditional
beliefs such as efficient market theory, the role of the U.S.
dollar as the primary global reserve currency, and credit
rating agencies," said Richard E. Talbot, co-head, Global
Research, RBC Capital Markets. "That said, the resiliency
of the markets should not be underestimated. Past cycles have
clearly shown that some of the greatest returns have been
earned during times of uncertainty as asset prices bottom
and climb a 'wall of worry'. This is borne out by the strength
of the markets during the past six months."
Executives have low visibility about the macro environment.
Nearly half (48 per cent) of the executives surveyed have
little or no confidence in their ability to predict whether
prices and rates in the financial markets will go up or down,
even within the next year. Underscoring the uncertainty, the
respondents split nearly equally on whether inflation or deflation
was the greater threat.
Given this backdrop, companies are taking action to rebuild
balance sheets and reevaluate the sources of financing. More
than half of the executives (54 per cent) say their companies
hope to raise fresh financing during the next two years, but
few expect to do so via investment-grade debt, IPOs or secondary
equity offerings; nearly half of those planning to raise capital
(43 per cent) hope to obtain it from private equity funds
rather than in the public markets.
About the Survey
In July and August of 2009, RBC Capital Markets commissioned
the Economist Intelligence Unit to survey senior executives
at 736 borrowers and investors from around the globe, including
both clients and non-clients of the firm, on their outlook
for the future of capital markets. Of the executives, 415
were involved in raising capital and 321 in investing capital.
Three out of 10 came from non-financial corporations ranging
in size from $75 million to over $100 billion in annual revenues.
The average size was about $5 billion. About 38 per cent (281)
came from commercial or investment banks and 13 per cent (101)
were asset managers or asset owners. There were 60 hedge funds,
57 private equity investors and a handful of central banks.
Financial institutions ranged in asset size from below $50
billion to over $1 trillion, with an average size of about
About RBC Capital Markets
RBC Capital Markets is the corporate and investment banking
arm of RBC and is active globally in debt origination, sales
and trading, foreign exchange, infrastructure finance, structured
products, metals and mining, and energy. Its North American
platform includes leading equity, underwriting, sales, trading
and research businesses and a significant U.S. investment
banking franchise. Bloomberg ranks the firm as one of the
Top 20 investment banks globally.
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