Cash-rich cos sit tight, fear liquidity freezes, govt intervention

Fears of government intervention and regulatory changes are causing companies in Asia and Europe to refrain from increasing spending despite improved balance sheets since the global financial crisis, a survey by money manager Fidelity Worldwide Investment showed.

The debt crisis in Europe and sluggish growth in the United States have top companies worried about the sustainability of existing sales volumes, according to the survey of more than 110 analysts at Fidelity in Europe and Asia.

These issues trump other factors such as inflation, wage costs, pricing and companies’ financing positions, with healthcare and utilities companies, in particular, fearing intervention even more than banks.

The analysts, who follow thousands of companies, said most corporations planned to cut or keep constant their capital expenditures, freeze spending growth in IT and marketing and also keep employment levels constant.

“The balance sheet improvement isn’t filling corporates with confidence,” said Matthew Sutherland, Fidelity Worldwide Investment’s head of research for Asia Pacific.

“They are keeping their hands in their pockets.”

Nearly 90 percent of the analysts said the companies they covered had stronger balance sheets than in 2008/2009.

Sutherland said companies in Asia ex-Japan were sitting on about $1 trillion in cash, while those in Europe had cash worth $2.6 trillion and were inclined more towards paying dividends.

Sutherland declined to name companies his analysts researched, but data compiled by Thomson Reuters Lipper showed the firm’s biggest fund investing across Asia, Fidelity Funds-South East Asia, counted Hyundai Motor and Samsung Electronics among its top holdings.

The $7.2 billion fund’s other top holdings at the end of September included Taiwan Semiconductor Manufacturing, Industrial and Commercial Bank of China SINA Corp and CNOOC Ltd.

Companies’ cautious outlook has also led firms to avoid growth through acquisitions, the survey said, adding however that conditions were right for a resurgence of M&A activity given strong balance sheets, low interest rates and attractive valuations.

Fidelity analysts said roughly 84 percent of companies they covered had either dismissed M&A entirely to drive growth or were only considering it on a small scale.

“That’s because they are generally paralysed with fear about what’s going on in the world, and they don’t really want to do anything with the cash,” Sutherland said.

“They are worried that they may have to survive a six-month period where global liquidity freezes again.”

A small amount of M&A activity was likely in the technology, telecom and media sectors, the survey showed.

Fidelity Worldwide Investment is a privately-owned asset management company that manages about $257 billion.

Reuters