Canadian CEO’s Hold Onto Cash!

• almost 50% said their companies are holding cash reserves, as contrasted with reinvesting or distributing them;
• 47% said they expected it to be harder for their firms to raise equity over the coming year;
• 34% said they expected it to be harder for their firms to raise debt over the coming year;
• 90% said European political instability has them very concerned or somewhat concerned; and,
• 70% said they are concerned about a slowing Chinese economy.

Commentary:

• first, with the exception of some specific geographies (Alberta’s Oil Sands, for example) new job openings in Canada are unlikely to be abundant,
• second, there may be increased merger and acquisition activity in Canada if viable companies are unable to access the capital markets. Those companies may have to turn, at an earlier stage than they might otherwise do, to well-financed companies who may be able to realize operating synergies by purchasing all or part of them;
• third, their concerns with respect to difficulties in the near-term in raising both equity and debt, combined with their near-term concerns with respect to European political instability and a slowing Chinese economy, all support their predilection to preserve cash;
• fourth, broadly they must believe the current problems they see are shorter-term than longer-term in nature. This is because their views on expansion of the Canadian economy in the next year, and modest growth for the U.S. economy, don’t entirely square with their near-term concerns.