Thomson Reuters/INSEADAsian Business Sentiment Survey

• Sentiment index at 65 in Q1 vs 58 in Q4• Businesses say China demand drop is biggest risk • Philippines most optimistic economy, Indonesia least• Household and food sector most positive, financial least

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

Q12 0 1 6

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Thomson Reuters/INSEAD Asian Business Sentiment Survey MARCH 2016

By Saikat Chatterjee

Sentiment at some of the biggest com-panies across Asia brightened in the first quarter of 2016, rising from a four-year low registered three months prior, as ex-ecutives bet on economic improvement in China, a Thomson Reuters/INSEAD sur-vey showed.

The survey in which 97 firms rated their six-month outlook resulted in a Thomson Reuters/INSEAD Asian Business Sentiment

Index of 65 for March from 58 in December. A reading over 50 indicates a positive view.

The companies ranked a decline in Chinese demand as the primary risk to their outlooks, followed by excessive foreign exchange volatility and falling oil prices. Yet readings across the region revealed the big-gest increase in confidence among firms in China itself and chief trading partners such as Singapore.

“The index is not an amazingly great number but it tells us there is certainly

less pessimism now than in previous sur-veys,” said Singapore-based economics professor Antonio Fatas at global busi-ness school INSEAD.

“People are digesting the economic slowdown in China and are being more optimistic and looking for opportunities rather than being alarmist, and that shows up in the numbers around the region, par-ticularly Singapore,” he said.

The Southeast Asian city-state regis-tered the quarter’s steepest rise in sentiment

Asia sentiment brightens with turnaround in China view

An employee works on an automobile assembly line in Qingdao, Shandong province, China, March 1, 2016. REUTERS/STRINGER

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Thomson Reuters/INSEAD Asian Business Sentiment Survey MARCH 2016

at 29 points, resulting in a neutral subindex at 50 after two deeply pessimistic quarters. In its top trading partner China, sentiment rose 21 points to 71.

Latest government data showed im-proving economic conditions in China, with fixed-asset investment increasing and capital outflows moderating, top officials said. The government also said it is aiming for economic growth of as much as 7 per-cent in 2016, after 6.9 percent in 2015 - the slowest rate in 25 years.

TOO SOON TO CHEERChina’s outlook is crucial in a region where every economy counts China among its top three trading partners. But while economic improvement helped overall sentiment re-bound, subindexes were still below the 50 mark in Malaysia, Taiwan and Indonesia.

Sentiment fell the most in Indonesia, by 23 points to 42, in a quarter when the central bank of Southeast Asia’s biggest economy lowered interest rates three times to stimulate growth.

Stimulus measures by central banks else-where, from Japan to Europe, encouraged investment in the more risky assets during the survey’s polling. But, on the whole, cor-porate executives remained wary about the broader health of the global economy.

“I think it is still too soon to say the world economy has turned a corner as the United States is still not raising in-terest rates despite an ongoing recovery - which tells me how fragile sentiment is,” said Edward Yip, corporate affairs general manager at Malaysian survey respondent Kossan Rubber Industries, which makes medical gloves.

“We need to see two sustained quarters of rebound before drawing that conclusion.”

FINANCIAL PESSIMISMCompanies in the Philippines were the most optimistic for the third consecutive survey, with that subindex rising to 85 from 77 three months earlier.

By sector, recovery in sentiment was most prominent among eight household, food and beverage companies, where the subin-dex jumped to a record high of 100 from 50.

At the other end of the scale, 15 fi-nancial institutions including China Pacific Insurance Group and Bank Rakyat Indonesia combined to log the only pessi-mistic subindex of 47, falling from 50.

Thomson Reuters and INSEAD polled companies from March 7-19. Of 97 re-spondents, 41 percent rated their six-month outlook as positive, 48 percent were neutral and 11 percent were negative.

Respondents this quarter includ-ed Australia’s Stockland, India’s Hero MotoCorp, Japan’s Hitachi Ltd and Fast Retailing, Korea Aerospace Industries, the Philippines’ Energy Development Corp and Taiwan’s Far EasTone Telecommunications.

Reporting by Saikat Chatterjee

100

115

130

145

160

Business sentiment index

Source: Thomson Reuters/INSEAD * MSCI International All Country Asia Pacific Price Index USD monthly

Thomson Reuters/INSEAD Asian Business Sentiment Index MSCI Asia-Pacific*

2010 2011 2012 2013 2014 201550

60

70

80

90

2016

Biggest perceived risksto business outlook By number of respondents

Source: Thomson Reuters/INSEAD

Note: Total no. of respondents = 97; includes multiple responses* Includes low oil prices, increased competition, regulatory change etc.

Tighter bank credit

China demand drop

Excessive forex volatility

Equity price declines

4

18

15

4

49 Other*

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Thomson Reuters/INSEAD Asian Business Sentiment Survey MARCH 2016

PHILIPPINES: TOP AGAIN WITH INDEX AT 85 IN Q1 VS 77 IN Q4Optimism among Asia-Pacific firms toward business conditions in the coming half-year was highest in the Philippines for the third straight quarter, spurred on by one of the fastest-growing economies in the region.

Eight firms rated their six-month outlook as positive, with one neutral and one negative. They said the top risks to their outlooks were increased competition and slowing Chinese demand. Five won more business versus three months prior, three took on staff and four reported improvement in the quality of assets.

INDIA: SENTIMENT RECOVERS BUOYANCY AT 83 VS 71Sentiment in India ticked upward after two quarters of decline, but remained off the near-universal positivism of a year prior. This time last year, faith in the then 10-month-old government had just begun to taper.

Six respondents had a bright near term outlook, with the remaining three neutral. Major concerns included weak demand both at home and in neighbouring China - whose economic growth India outpaced in the previous quarter. Three companies added business, versus two that lost. Four reported improved asset quality.

JAPAN: HIGHEST-EVER AT 77 VS 73Japanese companies logged record optimism in a quarter which saw the central bank impose fees on certain deposits for the first time, to prevent financial market volatility hurting business confidence and impacting efforts to end deflation.

Six firms were positive toward the next six months with five neutral. Excessive foreign exchange fluctuation was the biggest concern, with Chinese demand a close second. Business volume, staffing and asset quality were largely unchanged.

CHINA: ECONOMIC IMPROVEMENT BOOSTS SENTIMENT TO 71 VS 50Sentiment rebounded sharply among Chinese firms, polled shortly after the government announced its five-year development plan, with four of seven positive about the coming half-year and only one pessimistic.

Five firms booked more business over the three months prior, and just one firm saw declining domestic demand as a risk over the next six months - reflecting views of government officials that there are signs of economic improvement. Three firms increased staffing over the quarter and three booked improved asset quality.

SOUTH KOREA: WEAK EXPORTS PULL OPTIMISM DOWN TO 70 VS 75Two positive and three neutral views of the next six months gave South Korea an overall optimistic index. However, it was one of two indexes that declined from the previous survey.

Slowing demand in top trade partner China was the biggest concern for firms in a country where exports dropped during polling in March, extending a slump that began last year.

Two firms booked increased business volume, two raised staffing and two saw improvement in asset quality.

THAILAND: EXPORTS DROP BUT SENTIMENT ROBUST AT 67 VS 58Government spending promises this year may have helped Thai optimism improve after two quarters of decline, with six firms positive for the next half-year, eight neutral and one negative.

A drop in Chinese demand topped the risk list for an economy dependent on exports - which have fallen every month for over a year - followed by low oil prices. Eight firms booked increased business volume and asset quality, while five took on staff.

AUSTRALIA: ECONOMY PICKS UP BUT FIRMS UNMOVED AT 63 VS 61Change in sentiment this quarter was mildest in Australia where, before polling, data put fourth-quarter economic growth as the fastest in almost two years. Three firms were optimistic toward the coming half-year, four were neutral and one negative.

Among chief outlook risks were tighter bank credit, a fall in share prices and regulatory change. Four firms reported a rise in business volume and asset quality versus one each that booked a decline. One added headcount whereas three cut staff.

SINGAPORE: SURVEY’S BIGGEST JUMP IN SENTIMENT AT 50 VS 21Business sentiment in Singapore turned neutral after two deeply pessimistic quarters. One firm reported a positive outlook, one was negative and three were neutral after the government said fourth-quarter economic growth was quicker than expected, but that trade would grow at a slower pace than initially estimated.

HighlightsBY ECONOMY

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Thomson Reuters/INSEAD Asian Business Sentiment Survey MARCH 2016

One firm flagged tighter bank credit as the top outlook risk, while one said declining Chinese demand and another pointed to excessive currency volatility. One reported a decline in business volume, another saw deterioration in asset quality and two companies reduced headcount.

MALAYSIA: LOW OIL PRICES KEEP INDEX SUBDUED AT 45 VS 41Sentiment was largely pessimistic for the third consecutive quarter in Malaysia, where economic growth is being dragged down by historically low oil prices and a currency that has weakened significantly over the past year.

Three firms rated their six-month outlook as negative versus two positive and six neutral. Oil prices topped the risk list along with excessive foreign exchange volatility. Two companies each reported a fall in business and asset quality, compared with

three each that reported increases. Four firms lost staff.

TAIWAN: GLOBAL GROWTH CONCERN KEEPS MOOD DOWN AT 44 VS 38In Taiwan - where the government has already cut its 2016 economic growth forecast twice - overall sentiment remained pessimistic for a second consecutive quarter, with eight firms rating their six-month outlook as neutral while one was negative.

Firms cited global economic slowdown, weakening demand and regulatory change among the biggest risks to their outlooks. Two firms lost business over the past three months, whereas three gained. Asset quality and staffing were largely unchanged.

INDONESIA: SURVEY’S STEEPEST FALL IN SENTIMENT TO 42 VS 64During polling, the World Bank cut its view

of Indonesia’s 2016 economic growth to 5.1 percent whereas the International Monetary Fund raised its assessment to 4.9 percent - reflecting the to-ing and-fro-ing of business sentiment over the past year.

In the latest reading, one positive, three neutral and two negative views of the next six months sent Indonesia’s sentiment index into pessimism. Two firms said the top risk was excessive currency volatility, while one feared lower interest rates.

One firm reported lost business volume, whereas three gained. One said asset quality had improved while one said asset quality had deteriorated, and two companies hired whereas another two lost staff.

Writing by Aaradhana Ramesh

AustraliaChinaIndia

IndonesiaJapanKorea

MalaysiaPhilippinesSingapore

TaiwanThailand

BUSINESS OUTLOOKfor the coming six months

STAFFINGover the past three months

VOLUME OF BUSINESSover the past three months

Outlook by economy

Total17 57 2111 46 39

NEG. NEUTRAL POSITIVE11 42 38

Source: Thomson Reuters/INSEAD 97 companies responded to the Thomson Reuters/INSEAD poll, conducted March 7-19, 2016

LOWER SAME HIGHER LOWER SAME HIGHER

96 91 95

0 5 10 15 0 5 10 15 0 5 10 15

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Thomson Reuters/INSEAD Asian Business Sentiment Survey MARCH 2016

HOUSEHOLD, FOOD & BEVERAGE: RECORD HIGH AT 100 VS 50 IN Q4All eight respondents from the household, food and beverage sector rated their six-month business outlook as positive. That yielded an index of 100 for the first time for the sector, as well the steepest sector gain from the previous quarter.

Firms cited excessive currency volatility as the chief risk to their outlooks, followed by increased competition.

Over the past three months, two companies each reported an increase in the volume of business, staffing and quality of assets.

HEALTHCARE: SECTOR’S SECOND STRAIGHT RECORD AT 92 VS 88Japanese drugmaker Daiichi Sankyo and Malaysian medical gloves maker Kossan Rubber Industries were among six healthcare respondents of which five saw an upbeat half-year while one was neutral.

Firms said excessive foreign exchange volatility was the top outlook risk. Three added business over the past three months, three added staff and three saw improvement in asset quality.

RETAIL & LEISURE: MOST OPTIMISTIC IN A YEAR AT 77 VS 60Of 11 respondents – which included Japan’s Fast Retailing and Thailand’s Home Product Center – six gave a positive outlook while the rest were neutral. Most flagged a drop in Chinese demand as their chief risk.

All 11 booked increased business from three months prior. Five each reported improved asset quality and increased staff.

CONSTRUCTION & ENGINEERING: SURVEY’S STEEPEST FALL, 70 VS 90Japan’s Hitachi Ltd was among five construction and engineering respondents, of which two saw their six-month outlooks as positive while three were neutral. Two each considered their top risks to be declines in equity prices and Chinese demand.

One company reported a decline in business volume compared with three months earlier, while one company said staffing was lower. One firm reported improvement in asset quality.

REAL ESTATE: SENTIMENT INDEX RECOVERS SLIGHTLY AT 63 VS 57Australia’s Stockland was one of eight real estate firms of which two were positive and the rest neutral about their April-September outlooks. Excessive volatility in financial markets was a key risk along

with tighter credit.One company added and one lost

business; one added and one lost headcount; and two companies reported a rise in asset quality.

AUTOS: SECTOR’S HIGHEST INDEX IN OVER A YEAR AT 63 VS 60Only one of four auto-related companies rated their six-month business outlook positively while the rest were neutral, with excessive volatility in foreign exchange cited as one of the biggest risks.

Two firms reported staffing cuts. Two saw a rise in business volume compared with one which saw business fall.

METALS & CHEMICALS: SECTOR’S FIRST READING AT 63India’s Tata Steel was among four metals and chemicals companies - captured in previous surveys under the heading Resources - of which two rated their six-month outlooks as positive, one was neutral and one was negative.

The firms flagged declines in demand from China as well as in share prices as the primary risks to their outlooks. Over the past three months, two companies each reported an increase in business and asset quality. One firm added staff, while two cut.

TECH & TELECOM: LOWEST INDEX IN OVER A YEAR AT 59 VS 60Delta Electronics Thailand and Taiwan’s Far EasTone Telecommunications featured among 17 technology and telecom respondents, of which 14 had a neutral outlook while just three were positive.

HighlightsBY SECTOR

Buildings are seen through smog behind an

unfinished bridge near the Yujiapu financial

district, Tianjin, China, Feb. 22, 2016.

REUTERS/JASON LEE

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Thomson Reuters/INSEAD Asian Business Sentiment Survey MARCH 2016

BUSINESS OUTLOOKfor the coming six months

STAFFINGover the past three months

VOLUME OF BUSINESSover the past three months

Outlook by sector

200 05 10 15

Source: Thomson Reuters/INSEAD 97 companies responded to the Thomson Reuters/INSEAD poll, conducted March 7-19, 2016

AutosConst&Eng

Transport&LogEnergy&Utils

FinancialsHealthcare

Household, F&BMetals&Chem

Real EstateRetail&Leisure

Tech&Telecom

Total17 57 2111 46 39

NEG. NEUTRAL POSITIVE11 42 38LOWER SAME HIGHER LOWER SAME HIGHER

96 91 95

5 10 15 20200 5 10 15

Three firms said excessive currency volatility was the chief risk to their outlooks, while two cited a drop in Chinese demand. Other risks included rising competition and regulatory change.

Four firms reported improvement in asset quality, while four booked a rise in business and two logged a decline. Headcount was higher at two companies and lower at one.

ENERGY & UTILITIES: INDEX DIPS TO 54 VS 58Australia’s Oil Search and the Philippines’ Energy Development Corp were among 12 energy firms and utilities of which five were upbeat about the coming half-year and four negative.

Five respondents said the chief risk to their outlooks was the price of oil, which has been hovering at historical lows.

Six enjoyed increased business over the past three months versus two which lost

out, and three added staff whereas two cut. Three booked a rise in asset quality while one saw a fall.

TRANSPORT & LOGISTICS: NEUTRAL AFTER TWO NEGATIVES, 50 VS 36Korea Aerospace Industries and five other transport and logistics respondents offered business outlooks that were equally distributed between positive and negative. That yielded an overall neutral sentiment index after two consecutive quarters of pessimism.

Chief risks included weak global trade, tighter bank credit and falling consumer demand. Over the past three months, four gained business compared with two that lost, and two added staffversus three that cut. Three firms said asset quality had improved whereas one reported deterioration.

FINANCIALS: SURVEY’S ONLY PESSIMISTS WITH INDEX AT 47 VS 50Of 15 financial institutions, including Bank Rakyak Indonesia and China Pacific Insurance Group, three rated their six-month outlook as negative while two were positive and the remainder were neutral.

Four cited a decline in Chinese demand as the primary risk to their outlooks, while others cited financial market volatility, changing regulation and interest rates.

Three financial institutions reported an increase in the volume of business, compared with two where business had declined. Three added staff and three cut. Four saw improvement in asset quality while four saw a deterioration.

Writing by Krishna Eluri

Note: Sector names updated from 2016 Q1; companies surveyed change quarterly.

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Thomson Reuters/INSEAD Asian Business Sentiment Survey MARCH 2016

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