CFO Survey: CFOs Fear Impact of China Housing Bubble

Bubble with reflection of houses in it

Asian chief financial officers fear the impact of a housing bubble, and they’re worried it will hit the breaking point this year.

That is just one of the findings of the latest Duke/CFO Magazine Global Business Outlook Survey, which polled CFOs from around the world, including Asia (with the exception of Japan).

About 70 percent of CFOs in Asia believe there is a real estate bubble in their country and the same number say a deflated real estate market would pose a medium or significant problem to the country’s economy.

Fuqua Professor Campbell R. Harvey, founding director of the survey, said the ramifications, if the CFOs are right, could be severe, particularly in China.

“If the real estate bubble were to burst in the world’s second largest economy – China – the reverberations across the globe would be massive,” Harvey said. “The risks in Latin America are also large. Brazil’s economy has stalled, which increases the likelihood that the bubble might burst. While Peru’s economic growth has remained strong, it is worrisome that even there, a bubble poses a threat.”

Asian CFOs think there’s a 30-percent chance the bubble bursts this year.

Economic, political and regulatory uncertainty will also impact many Asian firms this quarter.

About 82 percent of CFOs in the region say they will reduce or delay capital spending, hiring, or increase cash holdings because of economic uncertainty.

For government economic policies, about 64 percent of CFOs said they would reduce or delay capital spending, hiring, or increase cash holdings.

The numbers improved when the survey asked about political uncertainty, with about 57 percent of CFOs saying they would take one of the three actions. And for regulatory uncertainty, the numbers were about the same.

U.S. Federal Reserve plans to tighten monetary policy are worrying to many CFOs around the globe. In Asia, about 53 percent believe their borrowing costs will go up by at least 2 percentage points. At that rate, about 29 percent of surveyed companies would reduce hiring. However, about 40 percent would reduce capital spending and about 38 percent would reduce the amount of money they borrow.

Interestingly, the second largest percentage — 20 percent of surveyed Asian CFOs — say they expect no change in interest rates. But regardless, even at that level, about 9 percent would reduce hiring, 6 percent would reduce capital spending and about 15 percent would reduce the amount of money they borrow.

Asian CFOs are feeling more positive about the future of their country’s economy than they were last quarter. Almost half (about 47 percent) are more optimistic, and almost a quarter (about 24 percent) reports no change.  About 28 percent are feeling less optimistic.

Read more about the results.

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