Thomson Reuters/INSEADAsia Business Sentiment Survey

• Sentiment Index falls to 66 in Q3 from 74 in Q2• Indian companies most positive, Taiwan outlook most negative• China, Singapore sentiment slips to neutral from positive• Autos, drugs sectors positive, property and shipping down

JAPAN/CHINA/INDIA/AUSTRALIA/KOREA/TAIWAN/SINGAPORE/MALAYSIA/INDONESIA/THAILAND/PHILIPPINES

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Thomson Reuters/INSEAD ASIA BUSINESS SENTIMENT SURVEY SEPTEMBER 2014

China, Singapore slowdown weigh

on Q3 Asia business

sentiment

By Aman Shah

Business sentiment among Asia’s top com-panies fell sharply in the third quarter, weighed down by worries about China’s slowing economy, a possible end to the U.S. Federal Reserve’s stimulus policy and a de-cline in the outlook for regional economic hubs like Singapore, a ThomsonReuters/INSEAD survey showed.

The ThomsonReuters/INSEAD Asia Business Sentiment Index fell to 66 in the third quarter from 74 in the previous

quarter, its steepest decline in three years. A reading above 50 indicates an overall posi-tive 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 percent this year, its weakest pace in 24 years, a Reuters poll of analysts shows.

Workers stand in a scaffolding of a new building being constructed in Jakarta March 23, 3014. REUTERS/BEAWIHARTA

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Thomson Reuters/INSEAD ASIA BUSINESS SENTIMENT SURVEY SEPTEMBER 2014

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

The index surveyed 200 of the Asia-Pacific region’s top companies in 11 econo-mies 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-maker Lupin Ltd, among others.

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

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

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

INDIA BULLISH, CHINA SLIPSBusiness sentiment in key Asian economies India and Thailand benefitted from politi-cal change.

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

All 15 Indian firms surveyed were posi-tive about their outlook. Thailand was the second-most positive, with a score of 90.

“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.”

Indian drugmaker Lupin also said it was positive about the domestic business environment.

“The new government’s affirmative and positive stand on important issues like eco-nomic policy, manufacturing reforms and easing of foreign investment norms has

reaffirmed confidence in India’s growth story,” said Shamsher Gorawara, director of corporate communications at Mumbai-based Lupin.

Politics also helped businesses in Indonesia, Southeast Asia’s largest econo-my, to achieve an overall positive score of 75 in the third quarter. Indonesians recent-ly elected President Joko Widodo, who is believed to be more business friendly than his predecessor.

Slowing growth in Asia’s largest econ-omy China, however, weakened business sentiment in the third quarter. All compa-nies polled from China were neutral about their outlook and most listed global eco-nomic 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 nega-tive territory with a score of 33.

Sentiment in the Philippines, which had posted a maximum score of 100 in the sec-ond 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 DOWNBy sector, autos, resources, pharmaceuticals and food were the most positive across the region with readings of 75.

Sentiment among Asian automakers improved for the third consecutive quarter, while the shipping, building and financials sectors were the least optimistic, each with a neutral reading of 50.

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

“Property is central to the Chinese economy. The softening real estate mar-ket primarily impacts construction activ-ity, with businesses directly involved in the sector feeling the biggest pinch,” HSBC’s Neumann said.

Asian builders also showed lower opti-mism with all respondents reporting a neu-tral outlook, compared with a 75 reading in the second quarter.

See the video: http://reut.rs/XtpAA6

REUTERS TV

Biggest perceived risks to business outlook

Source: Thomson Reuters/INSEAD.

Note: Total no. of respondents = 109. *Includes policy changes, regulations and infrastructure etc.

Globaleconomic

uncertainty56

Risingcosts

36

Currencyvolatility2

Other risks*15

By number of respondents

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Thomson Reuters/INSEAD ASIA BUSINESS SENTIMENT SURVEY SEPTEMBER 2014

AUTOS: IN OVERDRIVE (INDEX AT 75 VS 67 IN Q2)Sentiment among Asian automakers showed robust growth in the third quarter of 2014 from the second quarter, when it hit a two-year high. Three of six respondents were positive on the outlook, an improvement over two the last time. New orders and sales increased at five automakers, but global economic uncertainty remained the biggest

worry for most respondents, which included India’s Hero MotoCorp.

BUILDING: REALTY BITES (INDEX AT 50 VS 75 IN Q2)Sentiment for the building sector fell sharply in the third quarter as all the four companies polled were neutral in their outlook, compared with positive for half of the companies in the second quarter.

Global economic uncertainty remained the top risk. Orders and sales increased at two companies. DRUGS: SLIGHT REBOUND (INDEX AT 75 VS 70 IN Q2)Drugmakers recovered in the third quarter, with five out of 10 respondents positive on their outlook. In the second quarter, two were positive while three were neutral.

HighlightsBY SECTOR

Manager of Agriculture Business Unit Alfred Tham gives a tour of Panasonic’s first indoor vegetable farm at their factory in Singapore July 31, 2014.

REUTERS/EDGAR SU

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Thomson Reuters/INSEAD ASIA BUSINESS SENTIMENT SURVEY SEPTEMBER 2014

Global economic uncertainty was again cited the top worry, followed by rising costs. The participants include India’s Lupin Ltd and Japan’s Takeda Pharmaceutical Co Ltd . FINANCIALS: PESSIMISM GROWS (INDEX AT 50 VS 60 IN Q2)Global economic uncertainty continued to hurt sentiment in the financial sector in the third quarter, which declined further from the second. Two companies were negative on outlook, the first time since the fourth quarter of 2012, while 10 reported neutral out of the 14 respondents, which included Malaysia’s Alliance Bank. FOOD: STEADY(INDEX AT 75 VS 75 IN Q2)Sentiment was unchanged for food companies in the third quarter compared with the second. Seven of 14 companies reported a positive outlook, while the rest were neutral. Rising costs remained the top concern for most respondents in the survey, which included Japan’s Asahi Breweries and Kirin Holdings. PROPERTY: CONFIDENCE DENTED (INDEX AT 63 VS 79 IN Q2)The property sector was marred by

pessimism, with sentiment down sharply from the previous quarter as only four of 15 companies were positive on outlook compared with 10 of 17 firms that reported last time. Global economic uncertainty was perceived as the top risk by property firms. Ayala Land of the Philippines was among those participating in the survey. RESOURCES: EDGES DOWN (INDEX AT 75 VS 80 IN Q2)Resource companies retained their strong positive reading in the third quarter, though slightly down from the previous quarter. Rising costs, global economic uncertainty and “other” risks like regulatory uncertainty were the main concerns for resource firms. Australia’s Oil Search was among the respondents. RETAIL: UNINSPIRING (INDEX AT 63 VS 69 IN Q2)Sentiment among retailers continued to deteriorate for the second straight quarter, with six of the eight polling neutral in their outlook, while two were positive. Rising costs remained the biggest concern for firms, though new orders and sales increased at four. Japan’s Seven & I Holdings and Fast Retailing were among the respondents.

SHIPPING: CHOPPY WATERS (INDEX AT 50 VS 75 IN Q2)The shipping industry’s outlook took a big hit in the third quarter, sharply dropping from the previous quarter’s one-year high reading of 75, as all eight firms polled neutral. Global economic uncertainty and rising costs remained the major concerns for the respondents, which included South Korea’s Hyundai Heavy Industries Co Ltd. TECH: SLIGHT DROP (INDEX AT 68 VS 73 IN Q2)Overall sentiment was positive for technology companies though it fell slightly from the second quarter as new orders and sales fell for two companies out of 17, compared with just one out of 25 previously. A little more than half reported an increase in sales and orders, much less than the near two-thirds the last time. Rising costs and global economic uncertainties were the top risks perceived the firms, which included Japan’s Toshiba.

Girls sit near mannequins displaying hijabs for sale at Tanah Abang market, ahead of the holy fasting

month of Ramadan, in Jakarta June 27, 2014. REUTERS/BEAWIHARTA

300

400

500

600

50

60

70

80

Business sentimentindex declines in Q3

Source: Thomson Reuters/INSEAD.

Thomson Reuters/INSEADBusiness Sentiment Index (LHS)MSCI Asia-Pacific ex-Japan (RHS)

2010 ’11 ’12 ’13 ’14

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Thomson Reuters/INSEAD ASIA BUSINESS SENTIMENT SURVEY SEPTEMBER 2014

AUSTRALIA: MARGINALLY WEAKER (INDEX AT 75 VS 79 IN Q2)Business confidence among companies in Australia remained positive in the third quarter even as half the participants continued to worry about the global economy.

Of the 12 respondents, which included James Hardie and Oil Search, six companies remained positive and the rest remained neutral.

Employment levels and new orders have largely remained the same in the third

quarter. Three companies said their new orders increased while two said they hired more people.

CHINA: WEAKER (INDEX AT 50 VS 67 IN Q2)Sentiment in China declined sharply as all 11 companies polled reported a neutral outlook and only three respondents reported an increase in new orders and sales in the third quarter.

Seven of the 11 participants said global economic uncertainty was the top risk, a

worry shared by almost 50 percent of 120 companies surveyed in the third quarter. A handful of Chinese firms are concerned about rising costs.

China’s factory output grew at the weakest pace in nearly six years in August. This has led to a fear of a sharp slowdown in the world’s second-largest economy unless Beijing takes fresh stimulus measures.

INDIA: STEADY SENTIMENT (INDEX AT 100 VS 100 IN Q2)Indian companies were the most positive

HighlightsBY ECONOMY

An unemployed man holds a sign asking for work as he stands on a footpath in central Sydney September 10, 2014. REUTERS/DAVID GRAY

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Thomson Reuters/INSEAD ASIA BUSINESS SENTIMENT SURVEY SEPTEMBER 2014

for the second consecutive quarter with all 15 respondents reporting a positive outlook and 14 of them reporting an increase in new orders and sales.

Rising costs were a major concern for seven companies and three expressed concerns for the global economy. Prime Minister Modi’s labour reforms continue to revive the job market with a steady response of increases in employment levels from six respondents.

JAPAN: UP SLIGHTLY (INDEX AT 59 VS 56 IN Q2)Business sentiment in Japan strengthened marginally to 59 in the third quarter with an almost equally divided opinion on the global economic environment, rising costs and other risks.

Of the 17 respondents, which included Daiichi Sankyo Co Ltd, Canon Inc, Seven & I Holdings and Fast Retailing, 14 were neutral on the outlook and three positive, similar to the previous survey.

New orders and sales and employment levels remained similar to the last quarter.

SOUTH KOREA: STEADY (INDEX AT 50 VS 50 IN Q2)Global economic worries continued to weigh on the business sentiment of South Korean companies with the economy’s index maintaining the least positive reading of 50 for the second consecutive quarter.

All 16 respondents said their outlook was neutral with the majority concerned about the global economy while a handful were worried about rising costs. While six respondents said new orders and sales increased, only two reported higher employment.

Finance minister Choi Kyung-hwan has warned about the possibility of the South Korean economy entering “an early stage of deflation” after the Korean inflation rate remained below the mid-point of the Bank of Korea’s rate.

TAIWAN: SIGNIFICANTLY LOWER (INDEX AT 33 VS 67 IN Q2)Third-quarter Taiwan business sentiment fell

to 33, its lowest since Q4 2012, depleting the gains of the previous quarter. Two-thirds of the respondents remained neutral and the rest responded negatively to the poll.

More than half the respondents were concerned about the global economy with the rest quoting rising costs and exchange rate volatility as the business risks. Employment levels are holding steady in Taiwan for the moment but two respondents reported a decrease in new orders and sales.

SOUTHEAST ASIA: MOSTLY STABLE (THAILAND AT 90 VS 91; PHILIPPINES AT 83 VS 100; SINGAPORE AT 50 VS 67; MALAYSIA AT 67 VS 67)Sentiment among Southeast Asian businesses was mostly stable, although Thailand edged down and Singapore slipped to 50 from 67 as rising costs and worries about the global economy continued to divide opinions in the region.

The business outlook in Thailand fell to 90 after reaching 91 last quarter. Three out of five companies saw an increase in new orders and sales and employment levels remained the same for the majority of

the firms as companies deal with political protests in the country.

The Philippines business sentiment fell to 83 from 100 last quarter with eight of 12 respondents showing a positive outlook. Five respondents reported higher employment levels and new orders and sales continued to show positive levels with 11 companies reporting increases.

The sentiment index among companies in Singapore was pessimistic at best with a reading of 50 compared to 67 the previous quarter with all 13 respondents maintaining a neutral stance. There was a minor increase in employment levels and new orders and sales.

Indonesia business sentiment numbers were slightly skewed for the quarter as no Indonesian companies participated in the Q2 survey. In comparison to the Q1 reading of 50, Indonesia posted a significant gain of 75. There has not been a major movement in the employment levels and the new orders and sales levels of the economy.

Notes:** Companies sampled for the survey may change from one quarter to the next.

A woman selling poultry in a local food market uses her mobile phone in Bangkok February 27, 2013.

REUTERS/MOHAMMAD ISMAIL

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Thomson Reuters/INSEAD ASIA BUSINESS SENTIMENT SURVEY SEPTEMBER 2014

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