A majority of finance executives around the world expect it to take at least five years for corporate profit margins and returns on capital to return to pre-crisis levels, according to a recent survey.

The RBC Capital Markets survey of 736 senior finance executives, conducted by the Economist Intelligence Unit, reveals that most executives expect an economic recovery to be slow and weak.

More than half of respondents said they expect a gradual economic recovery over the next year, with global growth resuming at a below-trend rate over the following year. Another 24% do not expect a meaningful recovery for at least one year, followed by negligible growth at best, while 10% expect a prolonged period of global economic weakness lasting at least two years. Only 6% of executives expect a sharp economic rebound in the next six months.

“Finance executives believe that full recovery will be a slow, difficult process,” said Marc Harris, co-head of global research at RBC Capital Markets.

Furthermore, few executives expect a quick rebound for the capital markets. Nearly three-quarters of respondents said that transaction volumes will remain the same or shrink over the next 12 months for IPOs, secondary market offerings and investment-grade and high-yield debt. Only M&A activity is projected to grow, and even that only slightly.

In this environment, companies are taking action to rebuild balance sheets and reevaluate the sources of financing. More than half of the executives said their companies hope to raise fresh financing during the next two years, but few expect to do so via investment-grade debt, IPOs or secondary equity offerings. Nearly half of those planning to raise capital hope to obtain it from private equity funds rather than in the public markets.

The survey results also indicate a growing level of confidence in capital markets in emerging markets, such as China and India. Survey respondents said they had the most confidence in the growth and stability of China’s capital markets over the next two years, followed by the U.S. and India.

Among capital providers, China’s capital markets also earned the highest ranking, with India ranking second and the U.S. third. Capital raisers, however, appear to have more confidence in U.S. markets, with this group ranking the U.S. ahead of both China and India.

With a growing level of confidence in capital markets abroad, nearly a third of executives expect the U.S. dollar to lose its reserve currency status within the next five years.

“It’s hard to overstate the impact of the credit crisis on the capital markets, even for seasoned professionals. What we are seeing is a fundamental re-examination of traditional beliefs such as efficient market theory, the role of the U.S. dollar as the primary global reserve currency, and credit rating agencies,” said Richard E. Talbot, co-head of global research at RBC Capital Markets. “That said, the resiliency of the markets should not be underestimated. Past cycles have clearly shown that some of the greatest returns have been earned during times of uncertainty as asset prices bottom and climb a ‘wall of worry’. This is borne out by the strength of the markets during the past six months.”

IE