Thomson Reuters/INSEADAsia Business Sentiment Survey

• China, S. Korea, Taiwan and Singapore fall as exports hurt

• Shipping and financial sectors turn in most negative scores

• Asian companies remain cautious on earnings prospects

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

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Thomson Reuters/INSEAD ASIA BUSINESS SENTIMENT SURVEY SEPTEMBER 2013

Asia Business Sentiment drops sharply in Q3 as worries over global economy remain

By Anshuman Daga

Business sentiment among Asia’s top companies deteriorated in the third quar-ter, led by companies in export engines such as China and South Korea, derailing three consecutive quarters of improving sentiment, the latest Thomson Reuters/INSEAD Asia Business Sentiment survey showed.

The Thomson Reuters/INSEAD Asia Business Sentiment Index <RACSI> fell to 66 in the third quarter from 71 in the second quarter when it reached the highest level in more than a year. An index read-ing above 50 indicates an overall positive outlook.

Some of the weakest readings came from north Asia’s export-orientated economies of China, South Korea and Taiwan, and re-gional trading hub Singapore, all of which

turned in readings of 50 – highlighting the impact of a stuttering global economy.

“Asian companies are still maintain-ing a relatively cautious outlook regarding their earnings growth prospects,” said Fan Cheuk Wan, chief investment officer for the Asia-Pacific region at Credit Suisse’s private banking and wealth management unit. “It could be partly related to the recent volatility across the emerging economies over the past three months.”

Asian equities, currencies and bonds have taken a beating over the last few months after the U.S. Federal Reserve hint-ed it would halt its nearly five-year policy of flooding markets with cheap cash.

“This market volatility also inevitably has an impact on the perception and busi-ness sentiment of Asian corporates as they are still assessing the global growth out-look,” Fan said.

The survey showed that shipping and fi-nancial sectors were the most negative with a third-quarter score of 50, a sharp drop from the shipping industry’s reading of 80 and financials’ reading of 78 in the second quarter.

The poll conducted by Thomson Reuters News in association with INSEAD, a

Asia corporate sentiment in the third quarter http://link.reuters.com/kyp23v

REUTERS INSIDER

A businessman sits near a cargo area at a port in Tokyo. Japanese sentiment in the third quarter remained steady. REUTERS/ToRU Hanai

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Thomson Reuters/INSEAD ASIA BUSINESS SENTIMENT SURVEY SEPTEMBER 2013

global business and management school, surveyed more than 100 executives in 11 Asia-Pacific countries across sectors in-cluding autos, financials, resources, food and retail.

Of the 90 companies that replied to the poll, held between Sept. 2-13, two-thirds reported a neutral outlook, just less than one-third were positive on their prospects and about 1 percent reported a negative outlook.

China showed no signs of improvement, with business sentiment staying flat for a third consecutive quarter as all eight com-panies surveyed said their business outlook remained neutral.

However, markets have been comforted by the latest batch of economic data, adding to evidence that China may have avoided a sharp slowdown.

“We do know that Europe contin-ues to struggle and there was a soft patch a few months ago in China,” said Craig James, chief economist at Commonwealth Securities in Sydney. “There’s also the fact that while there’s a recovery underway in the United States, it’s somewhat patchy.”

“So I think the export-orientated econ-omies are basically suffering as a result of that,” James said. “The good news is more recent data seems to suggest a little bit more momentum returning to some of the major economies and regions but there is a lag in effect.”

As recently as a month ago, inves-tors were worried that China’s economy was slipping into a deeper-than-expected downturn. But policymakers have stepped in with measures to steady the economy, from quicker railway investment and public housing construction to introducing poli-cies to help smaller companies with financ-ing needs.

The survey showed that business confi-dence was steady in Japan at 63, its highest point since June 2010 among the 20 com-panies surveyed, which included Canon Inc and pharmaceutical firm Daiichi Sankyo.

“If we look at forward-looking indica-tors, we do see quite solid evidence showing that the global growth recovery should be

providing support for an improved growth outlook for Asia,” said Fan from Credit Suisse.

Companies in Indonesia were the most negative with a reading of 25, a sharp drop from its second-quarter reading of 100 when it was one of the most positive.

Indonesian companies are seeing an increase in their borrowing costs, with the central bank’s surprise hike in interest rates last week. Wallowing near a 4-1/2-year-low, the Indonesian rupiah is the worst per-former in Asia this year among currencies tracked by Reuters, having lost around 16 percent against the dollar.

However, there are some bright spots in Southeast Asia.

The Philippines was the most posi-tive economy with a reading of 100 – the only economy with a top score – compared to its reading of 94 in the second quarter. Australia was the second-most positive with a reading of 79, up from 75.

Additional reporting by Thuy Ong in SYDNEY and Hyunjoo Jin in SEOUL

Business sentimentindex slides in Q3

Source: Thomson Reuters/Insead.

Thomson Reuters/InseadBusiness Sentiment Index (LHS)

200

300

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500

600

20

40

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100

MSCI Asia-Pacific ex-Japan (RHS)

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A street vendor receives money from a truck driver while stuck in traffic near Cilegon in Indonesia.

REUTERS/BEawiHaRTa

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Thomson Reuters/INSEAD ASIA BUSINESS SENTIMENT SURVEY SEPTEMBER 2013

AUSTRALIA: MODERATELY HIGHER (InDEx AT 79 vS 75 Q2)Corporate confidence in Australia rose to match highs hit in the first quarter of 2012 as the conservative coalition won a landslide victory in the federal election, bolstering sentiment. Incoming Prime Minister Tony Abbott has declared Australia as “open for business.”

Of the seven respondents, four were positive while three remained neutral about the business outlook. In the previous quarter there were 14 respondents, with seven neutral and seven having a positive outlook.

The majority of respondents cited global economic uncertainty as their main source of concern and said the number of new orders remained the same. CHInA: STEADY (InDEx AT 50 vS 50 Q2)Business sentiment in China remained flat for a third consecutive quarter as all eight companies surveyed said their business outlook remained neutral.

Five respondents cited the world economy as their biggest concern while the remainder flagged rising costs as their primary

worry. One respondent reported a rise in employment compared to none last quarter while three said new orders had increased. InDIA: SLIGHT IMPROvEMEnT (InDEx AT 67 vS 63 Q2)Optimism returned to India, lifting its sentiment index moderately higher after a drop last quarter.

Three respondents said their main concern was a shaky world economy while a rout in the rupee in August also rattled sentiment with a third of companies worried about foreign exchange rates. Two

HighlightsBY ECONOMY

A vendor waits for customers at his stall at a wholesale food market in Mumbai July 15, 2013. India’s headline inflation quickened to 4.86 percent in June,

snapping a four-month easing trend, on higher food prices, government data showed on Monday. REUTERS/DaniSH SiDDiqUi

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Thomson Reuters/INSEAD ASIA BUSINESS SENTIMENT SURVEY SEPTEMBER 2013

respondents reported a lift in employment while five said new orders had risen.Political instability was also cited as a concern from one company.

Lupin Pharmaceuticals Ltd, India’s fourth-largest drugmaker by sales, and electricals retailer Godrej & Boyce were among the participants. JAPAn: STEADY (InDEx AT 63 vS 63 Q2)Business confidence remained steady in Japan at 63, its highest point since June 2010 among the 20 companies surveyed, which included tech giant Canon Incand global pharmaceutical company Daiichi Sankyo.

Half the respondents said global economic uncertainty was a primary concern while the remainder cited rising costs and exchange volatility as roadblocks to any moves higher. Two companies saw an increase in employment while two had decreased; the remaining 16 saw the same levels as the previous quarter. SOUTH KOREA: SIGnIFICAnTLY LOWER (InDEx AT 50 vS 64 Q2)Corporate sentiment slumped to 2013 first-quarter lows of 50, as six of the nine respondents said global economic uncertainty was the biggest risk to businesses this quarter.

Four companies said it saw a rise in new orders while the remainder stayed the same. In employment, one company said its levels of employment increased but the remaining eight was unchanged.

Hyundai Heavy Industries Co was among the participants in the survey. TAIWAn: DOWnBEAT (InDEx AT 50 vS 67 Q2)Taiwan saw its business sentiment slump to 50, its lowest point since the fourth quarter in 2012. Electronics company Acer Inc was among those surveyed.

Eighty percent of respondents said the biggest risk to businesses was global economic uncertainty while the remainder cited rising costs as their primary concern.

Two companies said employment levels had increased, while one reported a rise in new orders, a slight improvement from last quarter. SOUTHEAST ASIA (PHILLIPInES AT 100 vS 94; THAILAnD AT 71 vS 42; MALAYSIA AT 69 vS 83; SInGAPORE AT 50 vS 83; InDOnESIA AT 25 vS 100)Sentiment in Southeast Asia was mostly upbeat with the Phillipines posting unanimous confidence across all 12 companies surveyed, an uptick from the previous quarter.

Businesses in Thailand were mostly positive, strengthening from multi-year lows hit last quarter, with three positive about business outlook and four remaining neutral.Both Malaysia and Singapore fell from the previous quarter with the majority of businesses in both countries citing uncertainty in the global economy as the biggest risk.

Indonesia had the lowest index score, slumping from last quarter’s perfect outlook as businesses cited domestic inflation and global uncertainty for a bleak outlook.

Biggest perceived risks to business outlook

Source: Thomson Reuters/Insead.

Note: Total no. of respondents = 78. *Includes policy changes, regulations and infrastructure etc.

Globaleconomicuncertainty

50

Risingcosts

16

Currencyvolatility

9

Otherrisks*

3

By number of respondents

Fishermen navigate their boats past an area of old buildings in Sanya, Hainan province in China.

REUTERS/CHina Daily

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Thomson Reuters/INSEAD ASIA BUSINESS SENTIMENT SURVEY SEPTEMBER 2013

PROPERTY: BEST AMOnG ALL SECTORS (InDEx AT 100 v 83 In Q2)The property and building sectors were the most bullish with readings of 100 each. All of the 10 property firms polled painted a rosy outlook, bringing the index to the full mark for the first time since the fourth quarter of 2009.

Eight respondents said new orders were higher while seven said employment levels improved. The Philippines’ Ayala Land Inc was among the companies surveyed. BUILDInG: SHARP REBOUnD (InDEx AT 100 vS 50 In Q2)The confidence level for builders made a sharp rebound, making the steepest gain among all sectors. While all three respondents projected a bright outlook, they said employment levels remained the same as risks loomed about higher costs.

Construction materials maker James Hardie Industries was one of the respondents. FOOD: GOInG STEADY (InDEx UnCHAnGED AT 75)Food and beverage companies remained upbeat about their projections, although currency volatility and rising costs remained worries. Five companies had a positive outlook, while an equal number of firms expressed neutral views.

Seven reported an increase in orders while three said they remained the same. Japan’s Asahi Breweries and the Philippines’ Universal Robina were among the participants. RESOURCES: BOUnCInG BACK FROM DIP (InDEx AT 72 vS 66 In Q2) The reading among resources companies

bounced back from the second quarter, with four firms predicting better outlook and five holding a neutral view. Six respondents said orders remained steady, while the other three said orders went up. Thailand’s Banpu PCL were among those polled. AUTOS: RECOvERY PATH (InDEx AT 63 vS 56 In Q2)The index for automakers in Asia improved for a second consecutive quarter, although global economic uncertainty remained a major risk. Two respondents were optimistic about their outlook, while the other two were neutral or negative. TECH: OPTIMISM WEAKEnS (InDEx AT 62 vS 75 In Q2)Fewer technology firms had an upbeat outlook in the third quarter, pulling down the index. Three companies had positive

HighlightsBY SECTOR

A property sales agent looks at a penthouse unit model of “The Rise”, the latest development released by Cheung Kong Holdings Ltd. In Hong Kong.

REUTERS/BoBBy yip

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Thomson Reuters/INSEAD ASIA BUSINESS SENTIMENT SURVEY SEPTEMBER 2013

outlook in the third quarter, while eight had an upbeat view in the second quarter.

Three firms cut employment levels, while the other 10 maintained or lifted the current headcount. Japan’s Toshiba and NTT DoCoMo were among those who joined the survey. DRUGS: REMAIn AT OvER 2-YEAR-LOW (InDEx UnCHAnGED AT 60)Currency volatility and global economic uncertainty hampered the recovery of the confidence for drug makers, which remained at its lowest level since the first quarter of 2011.

Four respondents were neutral on their outlook, while one was positive. The participants include India’s Lupin Ltd and Japan’s Daiichi Sankyo Co Ltd. RETAIL: COOLInG (InDEx AT 57 vS 69 In Q2)The mood among retailers deteriorated from the preceding quarter, as six out of seven polled were “neutral” on their forecasts and only one was bullish.

Rising costs were the biggest concern for the respondents, which included Japan’s Seven & I Holdings and Fast Retailing. FInAnCIALS: BIG DECLInE (InDEx AT 50 vS 78 In Q2)The financial sector, along with the shipping industry, was the most negative with its business confidence dropping to its lowest level in three quarters.

All of the 21 respondents were “neutral” about their outlook, although most of them said sales had remained steady or increased. Alliance Financial Group <ALFG.KL> took part in the survey, among others. SHIPPInG: LOSInG STEAM (InDEx AT 50 vS 80 In Q2)The sentiment in the shipping-related sector suffered the biggest fall as concerns about global economic uncertainty weighed on Hyundai Heavy Industries <009540.KS> and other companies. All eight respondents held a neutral outlook despite orders rising or remaining steady.

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