Conditions in the equipment finance sector continue to improve around the world, according to the Global Asset and Auto Finance Survey 2016 published by Asset Finance International in association with White Clarke Group.
Research by China’s financial leasing association has found that while there has been some slowdown in demand in China, the Asian economic giant is still on track to overtake the US as the number one market in the world.
European markets have also seen improvements across the year. However, in Australia, conditions are mixed.
China still on track
According to the research, China’s market reached more than ¥five trillion during the first half of 2016. Growth in the market is reflected by a 45 per cent rise in the number of financial leasing firms last year to more than 3,185 firms.
The report goes on to state that for the next five years the Chinese market is expected to rise by more than 30 per cent a year. Foreign investors make up the lion’s share of the market and account for 90 per cent of all businesses operating in the equipment leasing space.
With a booming market and an economy that appears to remain strong, which industries are leveraging the most from equipment leases?
Demand for equipment finance is being driven by the growth of large corporations in China across a range of new sectors. These include telecommunications, agriculture, pharmaceuticals, energy and equipment manufacturing.
The report notes demand for finance across these sectors may be driving attractive sale and leaseback solutions that offer a 10 per cent discount compared to traditional bank finance. Using this incentive has opened up alternative financing to a broader audience that may not have chosen this route previously.
US: the great unknown
It’s been a rollercoaster of a year for the US with much speculation from across the globe regarding the American market. The Global Asset and Auto Finance Survey 2016, research indicates continuing improvements in the US market resulting in leasing volumes which are now near record highs. Investment in equipment and software was expected to grow by 4.4 per cent last year, according to the 2016 Equipment Leasing and Finance US Economic Outlook report.
But there is a risk demand for equipment from the agriculture, mining and oilfield, railroad, industrial and materials handling equipment sectors could become more subdued. As the report states, this is because, “these markets are impacted by global economic issues, while continuing low oil prices will hit the energy equipment sector.”
The US Equipment Leasing and Finance Association’s figures predicted US$1.6 trillion was invested in plant, equipment and software in the country last year.
Around 64 per cent or $1.1 trillion of that amount was financed through equipment finance solutions. Interestingly, the data suggested small- and medium-sized businesses were substantial drivers of market growth.
Additionally, as the US economy continues to strengthen, and the jobs market picks up, so has the country’s appetite for buying cars, helping to drive demand for auto finance.
Overall, the report notes the US is on track to experience a period of “sustained growth and expansion in the economy – and this is good news for the equipment finance industry.”
As positive as this news is, businesses will need to bear in mind that the report also goes on to state that tighter regulations and tax increases are two factors that could hamstring market growth.
Outside the US
Similar to the US, in the UK demand for finance from small business is helping to drive the market. The Finance and Leasing Association (FLA) recently found that asset finance new business grew by two per cent in June 2016 compared to June 2015. What’s more, is that the first half of 2016 saw six per cent of growth overall. Demand for commercial vehicle finance and business equipment finance new business grew in June by 11 per cent, whereas plant and machinery finance new business fell by three per cent during the same period. Despite this fall, attitudes toward asset financing remain positive and where the focus previously was around larger, more established businesses, small businesses are now taking the lead.
Back at home, the Queensland and WA markets continue to recover after the end of the mining boom. While equipment financing appears to be operating in a low-growth environment, cars/light commercials and other transport equipment are taking over. Changes in auto finance are anticipated following the Australian government’s decision to overturn the ban on bringing foreign cars into the country. Additionally, asset financing is beginning to see a rise in residential property. On the eastern seaboard, the relatively high dollar affected demand for equipment finance from the manufacturing sector. This shows how Australia’s industry focus is beginning to change from mining to transportation and property.
However, as interest rates increase in the US and further pressure is put on the Australian dollar, demand from this sector could start to come back through 2017.
Overall, 2017 appears to be a year that will be full of change for all regions across the globe. Where some regions see an increase in overall asset financing, others are seeing distinct industry activity changes which could influence the direction of a country’s primary industry.
Will small business be the new leading demographic for asset leasing?