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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Macro lead indicators have not been encouraging for investment,
and our recent survey of 60 large US corporates suggests this
picture won’t be changing anytime soon. 40% of companies in our
survey indicated they will cut spending in the next 6 months.
● While the picture is not quite as negative as our recent European
survey (where sovereign risk issues hardly help—see Corporate
spend: into reverse, 9 September), the specific message of
ongoing weakness in discretionary spending is the same.
● The survey shows that things that can be switched off easily are
being switched off. Planned cuts in areas such as travel,
advertising and commercial vehicles stand out. A notable contrast
in the survey is IT which, in offering productivity and competitive
benefits, is still being prioritised for now.
● The silver lining: There is one major difference here versus 2009.
US companies have cash. It gives comfort that this negativity
might prove short-lived. What will companies do with cash that is
earning no return and with balance sheets already lowly
leveraged? Nearly 50% of respondents expect M&A to be the
answer, followed by share buybacks. Click here for the full report.
What forms of spending are under most scrutiny?
The survey asks companies to outline spending plans by category—
travel budget, cars/commercial vehicles, advertising spend, building &
plant expenditure, their IT budget and employment plans.
Three things strike us here: (1) The shorter cycle/lighter end spending
seems potentially most at risk. While there is a lag in any changes to
spending decisions actually feeding through, these areas of spending
are the easiest to switch off. (2) While not showing positive readings in
the survey, machinery spending is relatively less negative. Heavier
end spending such as this can’t be turned off overnight. (3) There are
two encouraging sub-sectors. IT budgets look best protected—
companies would appear to have an ongoing desire to improve
productivity—while no cuts to employment are being flagged (though
equally neither do major increases seem to be in the cards).
US equity strategy perspectives
The central findings of the Credit Suisse Executive Panel survey fit
comfortably within the broad mosaic of US economic and financial
data that has become available in recent weeks.
First a positive—40% of survey respondents expect to grow their IT
budgets over the next six months versus roughly 20% of respondents
that expect to scale back their IT budgets. That suggests the pattern
of solid growth we have seen in spending on software and technology
equipment in recent quarters is unlikely to deteriorate markedly in the
next few quarters.
A continuous upgrade of technology infrastructure appears to be
a ”non-discretionary” item for many US corporations. Given what we
believe will be a fairly resilient technology spending profile, we are
comfortable with our overall neutral weighting of the technology sector
and an overweight of the software segment in a US equity portfolio.
Another positive survey finding is the modest net positive balance of
respondents leaning towards increasing employment and wages over
the next six months (28%) as compared with those expecting to cut
employment and wages (22%) over the next six months. This data fits
well with the latest {August} Institute for Supply Management (ISM)
survey results that also indicated modest positive employment growth
in both the manufacturing sector (51.8) and in the non-manufacturing
sector of the private US economy (51.6).
Our Executive Panel’s bias towards a more cautious spending profileon advertising, travel, cars and commercial vehicles aligns well with
the expected slowdown in spending on machinery. The survey data
suggests that sales are now coming in below expectations in many
US industries, and this is triggering cutbacks in “discretionary”
corporate spending of all types. There is a clear risk that the US
corporate sector gets locked into a pattern of negative re-enforcement
where cuts in discretionary spending start to snowball.
It is in this context that we continue to recommend a broadly defensive
orientation in a US equity portfolio. We are attracted to high-quality
equity securities issued by companies in non-cyclical industries that
have strong balance sheets and a tradition for paying significant
dividends to shareholders. At the sector level, our bias is towards
consumer staples, health care and regulated utilities.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● Macro lead indicators have not been encouraging for investment,
and our recent survey of 60 large US corporates suggests this
picture won’t be changing anytime soon. 40% of companies in our
survey indicated they will cut spending in the next 6 months.
● While the picture is not quite as negative as our recent European
survey (where sovereign risk issues hardly help—see Corporate
spend: into reverse, 9 September), the specific message of
ongoing weakness in discretionary spending is the same.
● The survey shows that things that can be switched off easily are
being switched off. Planned cuts in areas such as travel,
advertising and commercial vehicles stand out. A notable contrast
in the survey is IT which, in offering productivity and competitive
benefits, is still being prioritised for now.
● The silver lining: There is one major difference here versus 2009.
US companies have cash. It gives comfort that this negativity
might prove short-lived. What will companies do with cash that is
earning no return and with balance sheets already lowly
leveraged? Nearly 50% of respondents expect M&A to be the
answer, followed by share buybacks. Click here for the full report.
What forms of spending are under most scrutiny?
The survey asks companies to outline spending plans by category—
travel budget, cars/commercial vehicles, advertising spend, building &
plant expenditure, their IT budget and employment plans.
Three things strike us here: (1) The shorter cycle/lighter end spending
seems potentially most at risk. While there is a lag in any changes to
spending decisions actually feeding through, these areas of spending
are the easiest to switch off. (2) While not showing positive readings in
the survey, machinery spending is relatively less negative. Heavier
end spending such as this can’t be turned off overnight. (3) There are
two encouraging sub-sectors. IT budgets look best protected—
companies would appear to have an ongoing desire to improve
productivity—while no cuts to employment are being flagged (though
equally neither do major increases seem to be in the cards).
US equity strategy perspectives
The central findings of the Credit Suisse Executive Panel survey fit
comfortably within the broad mosaic of US economic and financial
data that has become available in recent weeks.
First a positive—40% of survey respondents expect to grow their IT
budgets over the next six months versus roughly 20% of respondents
that expect to scale back their IT budgets. That suggests the pattern
of solid growth we have seen in spending on software and technology
equipment in recent quarters is unlikely to deteriorate markedly in the
next few quarters.
A continuous upgrade of technology infrastructure appears to be
a ”non-discretionary” item for many US corporations. Given what we
believe will be a fairly resilient technology spending profile, we are
comfortable with our overall neutral weighting of the technology sector
and an overweight of the software segment in a US equity portfolio.
Another positive survey finding is the modest net positive balance of
respondents leaning towards increasing employment and wages over
the next six months (28%) as compared with those expecting to cut
employment and wages (22%) over the next six months. This data fits
well with the latest {August} Institute for Supply Management (ISM)
survey results that also indicated modest positive employment growth
in both the manufacturing sector (51.8) and in the non-manufacturing
sector of the private US economy (51.6).
Our Executive Panel’s bias towards a more cautious spending profileon advertising, travel, cars and commercial vehicles aligns well with
the expected slowdown in spending on machinery. The survey data
suggests that sales are now coming in below expectations in many
US industries, and this is triggering cutbacks in “discretionary”
corporate spending of all types. There is a clear risk that the US
corporate sector gets locked into a pattern of negative re-enforcement
where cuts in discretionary spending start to snowball.
It is in this context that we continue to recommend a broadly defensive
orientation in a US equity portfolio. We are attracted to high-quality
equity securities issued by companies in non-cyclical industries that
have strong balance sheets and a tradition for paying significant
dividends to shareholders. At the sector level, our bias is towards
consumer staples, health care and regulated utilities.
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