The Thomson Reuters/INSEAD Asian Business Sentiment Index, representing the six-month outlook of 86 firms, slipped to 69 for the September quarter from 74 three months before. A reading above 50 indicates a positive outlook.
While China, India and South Korea led the fall in sentiment in the third quarter, reflecting regional tensions and sluggish growth, most Southeast Asian economies and Australia put in a stable performance, limiting the downside in the overall index.
“Companies expressed concerns this quarter about trade and diplomatic tensions not only in the region but also in the world,” said Antonio Fatas, a Singapore-based economics professor at global business school INSEAD.
“This brought the index down, in a reflection of cautiousness because of the potential risks that could derail the current state of the economy,” he said.
South Korea’s sub-index fell the steepest among its peers in the survey, dropping to 50 from 75 in the previous quarter. The country has been rattled by North Korea’s series of nuclear tests and missile launches, although a war on the Korean peninsula is seen as unlikely.
Trade friction with China has also risen over Seoul’s deployment of a US anti-missile system to counter the North Korean threat, as Beijing fears the system’s radar can penetrate its territory.
China, upon which much of Asia depends for trade, saw its subindex fall to 63, its lowest since the last quarter of 2015. Its gross domestic product rose 6.9 percent in the second quarter but growth is expected to slow on tighter debt regulations.
India fell to 63 from 82 in April-June, a level last seen in the second quarter of 2013. Growth at Asia’s third-largest economy slowed to its lowest in three years to 5.7 percent in April-June and is expected to stay muted on a lack of private investment.
Australia’s sub-index inched up to 69 from 67 in the June quarter, and Singapore’s rose to 64 from 62. Sentiment climbed the most in Indonesia in the September quarter, with a 17 point jump in its sub-index to 100, its highest since the second quarter of 2013, though the survey pool was small with only three firms participating.
The sub-index for three other economies – Malaysia, Philippines and Taiwan – remained unchanged over the previous quarter.