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Let the Sector Games begin ASEAN Sector Outlook from TCI Perspective Alex Bursak ASEAN Head of Information & Grading 19 April 2016
Let the Sector
Games begin
ASEAN Sector Outlook
from TCI Perspective
Alex Bursak
ASEAN Head of Information & Grading
19 April 2016
2
Advanced economies continue to have a hard time to accelerate (+1.9% in 2016 after
+1.8% in 2015) while emerging markets need more time to bottom-out (+3.6% in 2016 after
+3.8% in 2015)
Sources: IHS, Euler Hermes forecasts
Increasing Flows segregation
Liquidity pass-through issue
Oil and commodity prices
Out of sync Public Policies
Watch-out for Surprises: warning signals for the next
6 to 12 months
A multi-low-speed world, but under control
2014 2015
Weights*Latest
forecast
Revision
(pps)
Latest
forecast
Revision
(pps)
World GDP growth 100 2.7 2.6 2.5 -0.2 2.8 -0.1
United States 22 2.4 2.4 2.1 -0.2 2.0 -0.2
Brazil 3 0.1 -3.9 -3.5 -1.1 0.3 -0.9
United Kingdom 4 2.9 2.2 1.9 -0.2 1.8 -0.1
Eurozone members 18 0.9 1.5 1.6 -0.1 1.7 -0.1
Germany 5 1.6 1.4 1.7 -0.1 1.8 =
France 4 0.2 1.1 1.3 -0.1 1.5 -0.1
Italy 3 -0.3 0.6 1.0 -0.1 1.2 =
Spain 2 1.4 3.2 2.6 = 2.1 =
Russia 3 0.7 -3.7 -0.9 -0.4 1.0 =
Turkey 1 3.0 4.0 3.3 = 3.5 =
Asia 29 4.8 4.8 4.7 -0.1 4.7 =
China 13 7.3 6.9 6.5 = 6.4 =
Japan 7 -0.1 0.5 1.0 -0.3 0.6 -0.2
India 2 7.2 7.5 7.6 = 7.8 =
Middle East 4 2.8 2.8 2.3 -0.8 3.5 -0.4
Saudi Arabia 1 3.6 3.4 1.5 -0.5 3.0 -0.5
Africa 3 3.5 2.7 2.8 -1.1 3.6 -0.9
South Africa 0 1.5 1.4 1.0 -1.0 1.5 -0.5
* Weights in global GDP at market price, 2014
NB: The revisions refer to the changes in our forecasts since the last quarter
2016 2017
2016 | © Copyright Euler Hermes
3
Asia Pacific - Resilience being tested
APAC GDP growth to slow to +4.5% by 2017 with lower growth in China.
Mounting downside risks weigh on the outlook.
Source: Euler Hermes
GDP growth, %
Global Trade slowdown
Tight monetary Policy in the
US
High private debt
Deflationary pressures
China’s imbalanced rebalancing
A toxic cocktail for companies
2014 2015 2016 2017
Asia-Pacific 4.7 4.6 4.5 4.5
China 7.3 6.9 6.5 6.4
Taiwan 3.9 0.7 1.5 2.0
Hong Kong 2.6 2.4 2.0 2.1
Japan -0.1 0.5 1.0 0.6
India 7.2 7.5 7.6 7.8
Australia 2.6 2.3 2.0 2.2
South Korea 3.3 2.6 2.5 2.7
ASEAN-5* 4.3 4.2 4.3 4.5
Singapore 3.3 2.0 2.0 2.4
Indonesia 5.0 4.8 5.0 5.2
Malaysia 6.0 5.0 4.5 4.6
Thailand 0.9 2.7 3.0 3.5
Philippines 6.1 5.8 5.8 6.0
2016 | © Copyright Euler Hermes
4
Some sectors almost blew out the flame in 2015 -
2016 will be no less challenging
Sector risk grades end-2015 (y-axis) & changes over a year (x-axis)
Last year was marked by renewed non-payment risk for many sectors.
Euler Hermes recorded 148 industry downgrades for only 76 upgrades.
Automotive
Pharmaceutical
Chemicals
Textiles
Transportation
Construction
Paper
Agrifood
Electronics
Metal
Retail
Machinery & equipment
Aeronautics
IT services
Energy
Computer & telecom
Car component
Household equipment
-10 -5 0 5 10 15 20 25
Hig
h R
isk
Low
Ris
k
Number of net downgrades
Source: Source: Euler Hermes
1 out of 4
industries worldwide are
in sensitive or high risk
territory
Metal and Machinery &
equipment
are most impacted with 21 and
15 downgrades
Transportation and
Aeronautics benefit from
cheap oil prices with 5 and 2
net upgrades
2016 | © Copyright Euler Hermes
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Businesses will have to develop 5 traits of
professional athletes in 2016
2016: Companies have their own Olympics
Short term (low commodity prices & erratic
demand) and long term (debt burden, disruption
& consolidation) challenges
Sectors exposure to 5 key challenges in 2016
Low
commodity
prices
China
rebalancingDebt burden
Digital
disruption
Supply chain
restructuring
Automotive 0 0 -1 -1 0
Construction -1 -1 -2 1 0
Transportation 1 -1 0 -1 1
Chemicals 1 1 -1 0 -1
Pharmaceuticals 0 2 0 1 2
Agrifood 1 -1 0 0 1
Textiles 0 -2 0 1 -1
Paper 0 -1 -2 -2 0
Electronics 0 -1 -1 1 1
Metal 1 -2 -2 0 -2
Retail 1 1 -1 -1 -1
Machinery & equipment -2 -1 -2 -1 -2
Aeronautics 0 1 0 0 1
IT services 0 2 -1 2 1
Household equipment 1 0 -1 1 0
Computer & telecom 1 1 -1 1 -1
Energy -2 -2 -1 0 0
Pharmaceuticals and IT Services best positioned to leverage current trends
Metal and Machinery & equipment are the most negatively impacted
Source: Euler Hermes
2016 | © Copyright Euler Hermes
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What happened in 1Q 2016?
92 changes in Sector Risk Ratings:
70 downgrades vs. 22 upgrades
Source: Euler Hermes
2016 | © Copyright Euler Hermes
Focus on ASEAN:
Downgrade in Indonesia:
- Construction (to medium risk)
Downgrade in Singapore:
- Computer & Telecom (to medium)
Downgrades in Malaysia:
- Computer & Telecom (to medium)
- Construction (to sensitive)
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Sector downgrade rationale for ASEAN (I)
2016 | © Copyright Euler Hermes
Downgrade in Indonesia:
Construction (to medium risk)
Downgrade in Singapore:
Computer & Telecom (to medium risk)
• Infrastructure spending historically lumped into end of the year,
often due to inflexible bureaucracy, difficulties obtaining land
clearance and complicated regulations.
• Mega projects and large budget allocation from Government vs.
execution risks.
• Track record of construction delays, plus macro-economic
slowdown in Indonesia and weakening IDR.
• According to data published by Retail Sales Index, steep contraction
observed in Q4 2015 (Oct - 19.4%, Nov -8.2%, Dec -26.4%) on y/y basis
• Manufacturing data on Computer Peripherals for Singapore is showing
contraction for full year 2015 by 8.8%
• Companies displaying pressure on margins. Furthermore, China and India
are key trading partners for players within this sector – medium risk.
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Sector downgrade rationale for ASEAN (II)
2016 | © Copyright Euler Hermes
Downgrades in Malaysia:
Computer & Telecom (to medium risk)
•Attributed to GST, rising cost of living and uncertain economic growth.
•Annual sales of IT products (media tablets, mobile computing, desktop) down by
15% y/y in 2015 to EUR991m.
•Telecom products (smartphones) down 19% to EUR1.78bn. Performance of
upstream and midstream players remain sound.
•Downstream segment (IT retailers) likely to face margin compression due to
higher selling prices as a result of weak MYR and prudent consumer spending.
• Sector continues to be hampered by high raw material costs,
increased foreign worker levy, expected increased minimum wage,
weakening MYR.
• Furthermore, weak domestic consumption and weak consumer
sentiment.
• Overall, adverse payment performance observed from Tier 2 and
Tier 3 players / sub-contractors.
Construction (to sensitive risk)
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Looking ahead – what to expect for FY 2016?
2016 | © Copyright Euler Hermes
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No free lunch, but…
2016 | © Copyright Euler Hermes
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Thank you for
your attention.
Alex Bursak
ASEAN Head of Risk Information & Grading
12 Marina View
#14-01 Asia Square T2 | Singapore 018961
Mobile +65 8511 7614
www.eulerhermes.com.sg
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