Asia business sentiment falls sharply

Thomson Reuters/INSEAD Survey finds steep decline in business sentiment among Asia’s companies concerned with the uncertain global economy and rising costs. 

Business sentiment among Asia’s top companies fell sharply in the third quarter, weighed down by worries about China’s slowing economy, uncertain global economic outlook and rising costs, a Thomson Reuters/INSEAD survey showed. Continued optimism in India failed to lift the gloomy picture.

The Thomson Reuters/INSEAD Asia Business Sentiment Index fell to 66 in the third quarter of this year from 74 in the second quarter, its steepest decline in three years. A reading above 50 indicates an overall positive outlook.

Companies in India were the most positive with a maximum score of 100 for the second consecutive quarter after pro-business leader Narendra Modi was elected prime minister.

In contrast, Taiwanese businesses were the most negative, with a score of 33.

“While growth is still robust across Asia, businesses are grappling with a number of challenges, including worries about rising interest rates as the Fed begins to press the brakes,” said Frederic Neumann, the Hong Kong-based co-head of Asian economic research at HSBC.

He also said business conditions in China had become more uncertain amid a softening real estate market.

Chinese companies polled were neutral about their prospects, which led China’s score in the third quarter to drop to 50 from 67. China’s economy is expected to grow 7.3% this year, its weakest pace in 24 years, a Reuters poll of analysts shows.

Singapore also turned in a third-quarter reading of 50, a sharp drop from the previous quarter’s score of 67.

The index surveyed 200 of the Asia-Pacific region’s top companies in 11 economies across sectors including financials, property, resources and technology.

Companies participating in the survey included Australian construction materials firm James Hardie Industries Plc, Japan’s Fast Retailing Co Ltd and Indian drug manufacturer Lupin Ltd, among others.

The poll, conducted by Thomson Reuters in association with INSEAD, a global management and business school, was compiled from September 1-12.

It showed global economic worries, rising costs and other risks including currency volatility and regulatory uncertainty, were the key business concerns.

Of the 120 companies that responded, 64% reported a neutral outlook, while 34% said they had a positive outlook and 1.67% were negative.

India bullish, China slips

Business sentiment in key Asian economies India and Thailand benefited from political change.

In India, Prime Minister Modi’s election has helped lift the stock market to record highs, while in Thailand, the end of months of political unrest and the establishment of a military government eased businesses concerns.

“One hundred-plus days into the Modi government and sentiment seem to be improving, albeit gradually,” said Girish Vanvari, co-head of tax at KPMG in India. “We are certainly in for a period of gradual sustainable growth.”

The election of President Joko Widodo also helped businesses in Indonesia, Southeast Asia’s largest economy, to achieve an overall positive score of 75 in the third quarter.

Slowing growth in Asia’s largest economy, China weakened business sentiment in the third quarter. All Chinese companies polled were neutral about their outlook and most listed global economic uncertainty as their greatest risk.

Apart from China, sentiment in South Korea and Singapore also slipped to neutral from positive in the second quarter. Taiwan was the only country in the region in negative territory with a score of 33.

Sentiment in the Philippines, which had posted a maximum score of 100 in the second quarter, dropped sharply to 83 as some companies lowered their bullish views on the outlook and employment levels.

Corporate sentiment among Australian companies also fell to 75 from 79 in the second quarter, while Japan edged higher to 59 from 56. Export-driven South Korea maintained its neutral reading of 50, the same as the second quarter.

Autos positive, Property down

By sector, autos, resources, pharmaceuticals and food were the most positive across the region with readings of 75.

The property sector recorded a sharp decline in sentiment, with the sector’s score falling to a more than two-year low of 63 from 79 in the second quarter. Many companies lowered their outlook to neutral as China’s property sector faces a deepening slowdown.

Pull-out Quote: 

“Global economic worries, rising costs and other risks including currency volatility and regulatory uncertainty, were the key business concerns.”