Capital markets steady in the face of headwinds
All asset classes have had a roller coaster ride in 2019, but equity and credit markets are benefiting from renewed central bank support. The past 12 months have been volatile for markets, but a reversal of policy direction, by both the US Federal Reserve (the Fed) and the European Central Bank (ECB) have calmed investors, for now.
Uncertainty about market direction and the difficulty of exiting an easing cycle has softened the levels of positivity seen in the 2018 Barometer. But most respondents are positive in their outlook for the next 12 months.
However, market shocks and reversals can be unpredictable and happen at any moment — for example, recent tensions in the US repo market and the spike in oil prices following the drone attacks in Saudi Arabia.
Companies could utilize the current environment of ultra low, even negative, interest rates to optimize their capital structure to safeguard against potential threats.
Corporate financial performance metrics to remain positive in the near term
The mildly positive outlook for the next 12 months is supported by respondents’ confidence in a modest improvement across a range of financial metrics. Revenue is forecast to be more positive than earnings. This is a clear indication that the margin pressures seen in reporting through 2019 will likely continue. But the overall picture is one of positivity. Respondents predict an uptick in free cash flow generation and investment in R&D and capex.
Responding to growth challenges: external threats to growth exist across a range of time horizons
It is impossible to avoid the headlines about geopolitical and trade disputes as well as regulatory changes. As equally immediate and pressing is increasing competition from innovative startups built on new technologies. Executives are acutely aware that a new business model or route to market can quickly undermine their competitive strengths and positioning. Proactively scanning an evolving industry landscape is a prerequisite for today’s companies. Acquiring or co-opting these emerging challengers is often a necessary response.
Broader societal issues are also increasingly impacting boardroom strategies. For example, the demand for action on climate change is not new and is growing stronger. Companies need to be proactive in addressing these issues or they will find customers shifting to competitors who are perceived to be more in tune to their concerns.