Asia business sentiment fell in 2013 – Is this a surprise or it has been pretty much well anticipated for many?

Bizdaily News (http://bizdaily.com.sg) reported on December 18, 2013 that based on the recent results coming from a business sentiment indicator compiled by Thomson Reuters and INSEAD Asia, it was found that the measure fell to 62 during the fourth quarter of 2013 from 66 in the previous quarter, and this was the lowest reading since the third quarter of 2012. A reading above 50 indicates a positive outlook.

There were a couple of surprising facts that came out of the survey results which suggest that economic conditions in a couple of emerging Asian economies are likely to show some stability or improvements in 2014. China and India came out as major surprises, given the expected economic growth slowdowns of both countries (low to mid 7.0 percent for the former, and 4.8 percent to 5.0 percent averages for the latter) in 2014. The business indicator was China rose to 75 during the fourth quarter of 2013 from 50 earlier this year on improving outlook among several Chinese companies, and positive hopes in general that the recent reforms announced in the November 2013 Third Plenum Session by the Chinese government might benefit many businesses, including both the private and the State-Owned Enterprises (SOE).

India’s business indicator rose to 82 during the fourth quarter of 2013 from 67 on improving manufacturing outlook, and a shrinking current account deficit, which benefited from the decline in the Indian Rupee currency. The Indian Rupee currency is currently trading in the range of spot IDR 62.000 to IDR 63.000 to the US Dollar as of early Asian trading hours on December 19, 2013, and its value has been depreciating quite substantially. Separately, the Reserve Bank of India (RBI) has chosen to maintain its repurchase (repo) rate steady at 7.75 percent during their recently concluded rate meetings which took place on December 18, 2013.

Other non-surprising facts that came out of the business indicator reading were some of the ASEAN region countries, including Thailand and Philippines. Singapore registered weaker readings due to the various uncertainties surrounding several of the country’s major export markets including the Euro Zone, China, and the United States where budget woes, namely the unsettled debt ceiling raising talks among lawmakers might have more or less dampened some of the exporters’ hope that conditions in the country might improve further in 2014. Thailand was dragged down by the political uncertainties following the recent protests against the current Prime Minister, Yingluck Shinawarta’s government over its controversial political amnesty programme surrounding her brother, Mr. Thaksin Shinawarta, who is currently in exile. Philippines was impacted by the recent typhoons in November 2013 which have resulted in more than 5,200 fatalities, and destroyed an estimated 24.0 billion pesos (USD 543.60 million) of crops. Its reading fell to 58 during the fourth quarter, compared to the maximum of 100 in the previous quarter.

South Korea’s reading remained flat at 50, while Japan’s reading fell to 55 during the fourth quarter from 63 during the previous quarter on concerns that Abenomics might not be working to their favour as expected. This is more or less in line with the recent published Bank of Japan’s (BOJ) monthly Tankan business sentiment survey among big manufacturers for the month of December 2013, which fell to 11.00 from an expected 17.00 when those statistics were released on December 16, 2013.

The latest business sentiment indicator published by Thomson Reuters/INSEAD Asia does point to an overall expected slowdown in Asia as a whole come 2014, particularly for emerging economies such as Indonesia, India, and possibly Thailand given the various political woes happening in the country. China is of particular concern in 2014 as it has been a leading driver for the Asian economic miracle for the past decade. The new administration headed by President Xi Jinping, and Premier Li Keqiang is determined to keep China’s economic growth stable in 2014. However, there are still issues that might be of top concerns about investors, including the unresolved ‘shadow’ banking system and the relatively large non-performing loan portfolios that many of the Mainland Chinese banks are currently holding. The Chinese banking system might be a major focus for possible reforms coming from the Chinese government in 2014. Although, this latest reading coming from business indicator compiled by both Thomson Reuters and INSEAD Asia pointed to possible signs of improvements, I believe that it is still far too early to tell whether such positive sentiments among several Chinese businesses will carry over into 2014, where issues including environmental, pollution, real estate markets, and the banking sectors continue to form part of daily bread-and-butter issues, and many Chinese people are hoping that the government could start to take a look at these issues which concern them the most and perhaps introduce comprehensive reforms that might bring about improvements to their daily lives.

For India, I believe that the bullish feelings among several Indian companies is at risk of losing steam come 2014 as the country goes to the polls in the upcoming parliamentary elections in May 2014 which could see the ruling Congress Party being voted out, and the ultra-nationalist, populist-oriented party, the BJP Party being voted into the government by an overwhelming majority. It could pose some challenges, particularly for businesses which have not taken sufficient measures to deal with such scenarios like a change in government which is all ready to introduce non-business friendly measures, including tax reforms, restrictions on business expansions, hiring policies, wages and salary matters that might negatively impact most of their business operations. The monetary reforms that are being introduced under the new RBI leadership of Mr. Raghuram Rajan are showing some positive signs of functioning well, but in order to create an all-out impact on India’s economic growth outlook in 2014, both monetary and fiscal reforms need to be well co-ordinated. However, there are little signs of hope among many financial professionals, banking executives, and the Indian public in general that both sets of reforms could improve the overall economic outlook for India in 2014.

In summary, I believe that the latest survey results coming from Thomson Reuters and INSEAD Asia are of a mixed bag, namely I believe that it is after all a lagging indicator, and some of the positive sentiments coming from certain Asian nations such as China, and India, might not carry over in 2014 and beyond, provided that the respective governments of China, and India get their acts together and implement comprehensive reforms that will help to ensure that continued stability and strength of both countries’ economic outlooks. Japan is another country that needs its leaders to think seriously hard on the structural side of the economy in order to complete the so-called ‘Three Arrows’ (Fiscal, Monetary, and Structural) reforms needed to drive the economy further into sustainable path of positive inflation, and continued economic growth in general going forward.

About Hock Meng Tay - Chief Editor, Asia-Pacific Region

Hock Meng Tay, CAIA has written 181 post in this blog.

Chief Editor, Asia-Pacific Region Hock Meng Tay is a CAIA holder and is currently taking CFA qualification. He has over 10 years of experience working as research associate in several investment companies.He is an expert in financial analysis and has published research reports in his current role. He obtained his Masters of Business Administration in Integrated Management and Masters of Arts in Economics while serving his internship in Starsource Inc

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