Thomson Reuters/INSEADAsian Business Sentiment Survey

• Sentiment index 68 in Q3 vs 67 in Q2• Trump presidency, energy price seen as key risks• Philippines firms most positive, Singapore least• Real estate, utilities most positive; construction least

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

Q32 0 1 6

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Thomson Reuters/INSEAD Asian Business Sentiment Survey SEPTEMBER 2016

BY HYUNJOO JIN

Sentiment at Asian companies edged up to its highest level in five quar-ters in July-September, boosted by

signs that China’s economy is stabilizing and as concerns about Britain’s move to exit the European Union recede, a Thomson Reuters/INSEAD survey showed.

But businesses cited the policy uncer-tainty from a potential victory for U.S. Republican presidential candidate Donald Trump, as well as energy prices as key risks.

The Thomson Reuters/INSEAD Asian Business Sentiment Index, representing the six-month outlook at 118 firms, was 68 in the third quarter against 67 three months prior - marking the third consecu-tive quarterly gain from a four-year low in December. A reading over 50 indicates a positive view.

“The risks in China look more manage-able. Brexit has not yet resulted into a full-blown crisis so there is a hope that it will be contained,” said Antonio Fatas, a Singapore-based economics professor at INSEAD.

The index started in 2009 with an all-time low of 45, but has largely hovered be-tween 60 and 70 in the years since then.

China, the world’s second-biggest economy, had a subindex of 90, its high-est since the first quarter of 2011. Four of five respondents in China rated their six-month business outlook as positive, while one was neutral.

China’s factory output and retail sales grew faster than expected in August buoyed by a strong housing market and a government infrastructure spending spree,

Asia sentiment hits 5-quarter high

as China, Brexit worries ease

Republican presidential nominee Donald Trump gestures to supporters as he departs a campaign rally in Clive, Iowa, U.S., Sept. 13, 2016. REUTERS/MIKE SEGAR

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Thomson Reuters/INSEAD Asian Business Sentiment Survey SEPTEMBER 2016

suggesting the country’s third-quarter growth is holding up better than expected.

Australia, a major supplier of resources to China, saw this quarter’s biggest gain in sentiment, with a 19-point jump in its sub-index to 88, as the economy expanded at its fastest annual pace in four years in the second quarter.

Singapore was this quarter’s steepest decliner, with a 25-point slump in its sub-index to 38. Singapore’s exports in August stagnated, adding to concerns for the city-state which has been hurt by the tumble in oil prices and last month cut its economic growth forecast.

In contrast, companies in the Philippines were the most optimistic for a fifth straight quarter, with a subindex of 94, due to strong economic growth in the Southeast Asian nation.

South Korea and Japan posted a neutral index of 50 each, with business sentiment dropping from 73 in the case of Korea and climbing from 46 for Japan.

A Trump U.S. presidency and energy prices were most often cited as the biggest business risks for the firms, with 15 of 114 responses each, followed by China’s rising corporate debt at 14.

“Yes, Trump represents a risk,” said INSEAD’s Fatas, adding these included geopolitical risk and a lack of concrete eco-nomic proposals.

SECTOR OUTLOOKSOther risks cited by the survey respondents included sluggish consumer sentiment with eight mentions while seven firms cited for-eign exchange volatility.

The latest poll, conducted Sept. 1 through Sept. 17, showed 49 percent of respondents had a positive outlook - the highest in nearly two years. Thirty eight percent were neutral while 13 percent were negative.

By sector, sentiment rose the most in the real estate sector, with a subindex climbing 12 points to 75, making it among the top performers.

The biggest decliner was the retail and leisure sector, with its reading falling 14 points to 68.

The construction & engineering sector remained the most downbeat, with a read-ing of 58. But the mood was bright in South Korea, where construction began on a record 720,000 new residential units last year.

“We expect construction materials to boom until next year as the construction market has been experiencing a strong de-mand last year and this year,” KCC, a lead-ing South Korean construction materials maker, said in an emailed statement.

Respondents who agreed to be identified included Oil Search, Hero MotoCorp , Hitachi, Kossan Rubber, Philippine National Bank and Advanced Semiconductor Engineering.

Note: Companies surveyed can change from quarter to quarter

Biggest perceived risksto business outlook By number of responses

Source: Thomson Reuters/INSEAD

Note: Total no. of valid responses = 114.* Includes global market volatility, economy slowdown, government regulations, etc.

7

63 Others*

Trump U.S. presidencyBrexit fallout

14

15

15

China’s rising corporate debtEnergy prices

Biggest perceived risksto business outlook By number of responses

Source: Thomson Reuters/INSEAD

Note: Total no. of valid responses = 114.* Includes global market volatility, economy slowdown, government regulations, etc.

7

63 Others*

Trump U.S. presidencyBrexit fallout

14

15

15

China’s rising corporate debtEnergy prices

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

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Thomson Reuters/INSEAD Asian Business Sentiment Survey SEPTEMBER 2016

A migrant jobseeker buys barbecued meat from a street vendor in Tongzhou district of Beijing, China, Feb. 25, 2016. REUTERS/DAMIR SAGOLJ

PHILIPPINES: MOST OPTIMISTIC FOR FIFTH STRAIGHT QUARTER AT 94 IN Q3 VS 86 IN Q2Encouraged by stronger-than-expected second quarter economic growth, eight of nine firms provided a positive outlook about the coming six months. Only one gave a neutral view. Respondents included Philippine National Bank , Union Bank, Universal Robina and SM Investments.

The respondents cited foreign exchange volatility, fluctuation in energy prices and rising competition as risks. Six companies reported increased sales and orders, with two taking on more staff.

CHINA: SENTIMENT RISES TO HIGHEST IN OVER 5 YEARS AT 90 VS 75 While a slowing economy remained one of Asian companies’ key risks, four of five Chinese firms provided a positive outlook.

Three firms reported increased headcount, while one reported a fall. Five took on more business over the past three months, while one reported no change. AUSTRALIA: INDEX AT ITS HIGHEST EVER AT 88 IN Q3 VS 69 IN Q2Sentiment in Australia rose at the sharpest rate among economies polled, by 19 points.

Five of eight companies booked more business, with four adding more staff. Australia’s jobless rate dipped to 5.6 percent, a three-year low, in August from 5.7 percent.

Respondents included Brambles, James Hardie, Stockland Corporation and Oil Search.

Six firms were upbeat in their outlook and two were neutral. Main risks cited varied, from volatile energy prices to slowing Chinese growth. INDONESIA: INDEX JUMPS TO OVER 3-YEAR HIGH AT 81 IN Q3 VS 64 IN Q2Boosted by the economy’s strongest

HighlightsBY ECONOMY

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Thomson Reuters/INSEAD Asian Business Sentiment Survey SEPTEMBER 2016

growth rate in 10 quarters in April-June and higher non-oil and gas exports for the first time in 16 months in August, five of the eight companies surveyed offered a positive outlook.

Respondents included Bank Mandiri .Five of eight firms saw increased business

volume but staffing remained largely unchanged, with only two firms adding headcount. Volatile energy prices and possible U.S. interest rate hike were cited as risks. SINGAPORE: SURVEY’S MOST PESSIMISTIC AT 38 VS 63A record 17 Singapore companies participated in the survey, with the city-state’s index tumbling 25 points – the steepest among all economies surveyed.

Singapore’s economy has been hit by weak global demand, while a labour shortage and a flagging oil and gas sector have dragged on growth.

Companies cited rising corporate debt in China and energy prices as key risks. MIXED PICTURE ELSEWHEREIn Japan, business sentiment climbed from 46 to the neutral level of 50, while South Korea’s index fell to 50 from 73. In Malaysia,

the index climbed to 61 from 55, its highest level since the second quarter of 2015. In Thailand, business sentiment jumped to 72 from 59 while in Taiwan, it was unchanged at 64. In India, it slipped to 75 from 78.

Writing by Anu Bararia

A building of a

closed steel factory

is pictured in

Tangshan, China,

Feb. 27, 2016.

REUTERS/

KIM KYUNG-HOON

AustraliaChinaIndia

IndonesiaJapanKorea

MalaysiaPhilippinesSingapore

TaiwanThailand

Outlook by economy

Source: Thomson Reuters/INSEAD 118 companies responded to the Thomson Reuters/INSEAD poll, conducted Sept.01-17, 2016

BUSINESS OUTLOOKfor the coming six months

STAFFINGover the past three months

VOLUME OF BUSINESSover the past three months

Total23 65 2915 44 56

NEG. NEUTRAL POSITIVE21 37 54LOWER SAME HIGHER LOWER SAME HIGHER

115 112 117

0 5 10 15 20 25 300 5 10 15 20 25 300 5 10 15 20 25

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Thomson Reuters/INSEAD Asian Business Sentiment Survey SEPTEMBER 2016

REAL ESTATE: INDEX HIGHEST IN A YEAR AT 75 IN Q3 VS 63 IN Q2Australia’s Stockland Corporation was one of four respondents in the sector, which posted the biggest jump in sentiment for the quarter among all sectors.

Of the firms responding, two were positive about their business outlook. In Australia in particular, historically low borrowing costs have sparked a boom in home-building.Risks to respondents’ business outlooks included an increase in interest rates and a rise in energy prices.

TECH & TELECOM: HIGHEST IN A YEAR AT 70 IN Q3 VS 65 IN Q2Japan’s Canon Inc and Taiwan’s Advanced Semiconductor Engineering Inc were among 27 respondents in this sector.

Twelve of the respondents had a positive outlook, while 14 said they were neutral. Twelve also said business volume had risen since the previous quarter’s survey.

The fallout from Britain’s decision to leave the European Union and the possibility of dramatic change in U.S. policies should Donald Trump win the

November presidential election were cited as chief risks. ENERGY & UTILITIES: INDEX HIGHEST IN TWO YEARS AT 75 IN Q3 VS 68 IN Q2Four companies, including India’s Adani Power and Australia’s Oil Search, participated.

The sector’s companies generally saw a higher volume of business and hired staff. Two firms had a positive outlook while the other two were neutral, with energy prices cited as the biggest risk.

Crude oil storage tanks are seen at the Cushing oil hub in Cushing, Oklahoma, March 24, 2016. REUTERS/NICK OXFORD

HighlightsBY SECTOR

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Thomson Reuters/INSEAD Asian Business Sentiment Survey SEPTEMBER 2016

TRANSPORT & LOGISTICS: HIGHEST IN OVER TWO YEARS AT 69 IN Q3 VS 64 IN Q2Eight companies responded to this quarter’s survey, including Australia’s Brambles Ltd.

Five had a positive outlook while two were negative and one was neutral.

Half the firms polled said staffing and business volume had risen. Risks cited included a subdued global economy and currency fluctuations.

RETAIL & LEISURE: QUARTER’S STEEPEST DECLINER AT 68 IN Q3 VS 82 IN Q2Of 14 respondents from the sector, which included Thailand’s Minor International, there was only one with a negative outlook.

Seven were neutral about the sector’s prospects while six were positive. Staffing and business volume for more than half of the companies were either the same or lower

compared with the previous survey.Top risks included a Trump presidency

and China’s rising corporate debt. MOST OTHER SECTORS RISESentiment rose in the Metals and Chemicals sector, to 75 in the third quarter from 64 in the second. The Construction and Engineering sector also rose to 58 from 50, and the Household, Food and Beverage sector to 72 from 67.

Healthcare remained at the same level as last quarter, at 72.

The outlook for financial firms edged down to 62 from 65. While 10 of 24 respondents in the sector said business volume had grown, only four said hiring had risen with the majority saying staffing stayed the same.

The auto sector also declined three points, falling to 60.

Writing by Krishna Eluri

An employee works at a Tmall logistic centre in

Suzhou, Jiangsu province, China, October 28,

2015. REUTERS/ALY SONG

BUSINESS OUTLOOKfor the coming six months

STAFFINGover the past three months

VOLUME OF BUSINESSover the past three months

Outlook by sector

0 15 30 300 010 20

Source: Thomson Reuters/INSEAD 118 companies responded to the Thomson Reuters/INSEAD poll, conducted Sept.01-17, 2016

AutosConstruction & Engineering

Transport & LogisticsEnergy & Utilities

FinancialsHealthcare

Household, F&BMetals & Chemicals

Real EstateRetail & Leisure

Tech & Telecom

Total23 65 2915 44 56

NEG. NEUTRAL POSITIVE21 37 54LOWER SAME HIGHER LOWER SAME HIGHER

115 112 117

10 20 30

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Thomson Reuters/INSEAD Asian Business Sentiment Survey SEPTEMBER 2016

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