China, Singapore slowdown weigh on Q3 Asia business sentiment

MUMBAI (Reuters) - Business sentiment among Asia's top companies fell sharply in the third quarter, weighed down by worries about China's slowing economy, a possible end to the United States Federal Reserve's stimulus policy and a decline 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 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 Mr 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 per cent 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, Japan's Fast Retailing Co and Indian drugmaker Lupin, 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, rising costs and other risks including currency volatility and regulatory uncertainty were the key business concerns.

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

Business sentiment in key Asian economies India and Thailand benefitted from political 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 positive 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 Mr 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 economic policy, manufacturing reforms and easing of foreign investment norms has reaffirmed confidence in India's growth story," said Mr Shamsher Gorawara, director of corporate communications at Mumbai-based Lupin.

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

Slowing growth in Asia's largest economy China, however, weakened business sentiment in the third quarter. All companies polled from China 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.

By 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 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.

"Property is central to the Chinese economy. The softening real estate market primarily impacts construction activity, with businesses directly involved in the sector feeling the biggest pinch," HSBC's Mr Neumann said.

Asian builders also showed lower optimism with all respondents reporting a neutral outlook, compared with a 75 reading in the second quarter.