HONG KONG - The YPO Global Pulse Index for Asia, measuring economic confidence among CEOs in the region, fell 4.7 points from 62.0 to 57.3 in 3Q15. Not only was this the biggest drop of any region around the globe, it was the fifth consecutive quarterly decline and the lowest level of confidence reported by YPO leaders in Asia since the inception of the survey six years ago.
According to the latest YPO Global Pulse survey, slower growth in China is only one reason for a sharp erosion of confidence among Asian CEOs. In addition, significant fluctuations in the stock market have caused business leaders in Asia to get nervous. In fact, confidence amongst YPO members in China fell 8.0 points in the third quarter from 60.7 to 52.7.
Because China imports significant quantities of goods from ASEAN countries, South Korea and Japan to fuel its industrial-based economy, the Chinese economy has a spillover effect across the rest of Asia. Additionally, emerging economies in Asia have been hit hard by the increase in the value of the U.S. dollar and the sharp drop in demand for commodities from China. As the value of the U.S. dollar rises, countries that rely on China as a market for their exports have been hit especially hard.
"As China struggles to transform from an industrial-based economy to a consumer-driven model, confidence in Asia has been adversely affected by the tight inverse relationship between the value of the U.S. dollar and commodity prices," said Leon Teoh, managing director of Fortson Sdn Bhd and a member of the YPO SEA Dragon chapter. "If a firm in Asia purchases soybeans from the United States and the dollar rises 15%, the importer needs 15% more local currency to purchase the same quantity of beans. As a result, his demand for beans will decline and the price of beans will fall. Hence, an increase in the value of the dollar causes a roughly commensurate drop in the prices of commodities."
Countries in ASEAN nations have been hit by slower growth in China combined with a drop in the price of their exports. Not surprisingly, confidence amongst YPO members in those ASEAN countries plunged 7.5 points in the third quarter from 60.1 to 52.6. Confidence in Thailand, for example, fell 5.9 points from 63.5 to 57.7. Malaysia dropped 12.1 points to from 57.2 to 45.1, now in firm pessimistic territory.
Long-term confidence is declining as Asia grapples with the economic effects spilling over from China. The YPO Global Pulse Sales Confidence Index for Asia fell 6.2 points from 69.1 to 62.9 in the third quarter, the second lowest level since the inception of the survey. The global sales index fell 2.6 points in to 65.3, and the U.S. index declined 2.2 points to 66.8. Clearly, YPO leaders in Asia are less optimistic about the sales environment than their counterparts globally.
Nevertheless, the Asia confidence index is at 57.3, still very much in line with the global index of 58.1. China's economic transformation is definitely changing the world, but while the outlook for Asia going forward may not be as optimistic as it once was, it cannot be characterized as pessimistic.
Japan remains relatively confident despite slower growth in China. The confidence index for Japan declined only 0.6 point to 56.0, presumably due to the combination of weakness in the yen, near 0% short-term interest rates, and a bond-buying program expected to boost Japanese GDP growth to the 1% mark in 2016.
Hard hit by slower growth in China and falling commodity prices, ASEAN confidence continues its decline. Confidence among YPO members in ASEAN countries plunged 7.5 points from 60.1 to 52.6. Diminished expectations for developing nations in the region make it far more challenging for ASEAN nations to attract investment from outside the region. Malaysia saw the biggest loss in investment confidence, dropping 22.3 points to 47.3.
Confidence in India slightly declines, but remains at healthy level. With a drop of 3.8 points from 66.1 to 62.3, Indian CEOs were not quite as optimistic as previous quarters, but confidence is still healthy. While sales confidence dropped 7.5 points from 76.0 to 68.5, it is still in positive territory.
Australasia sees minimal decline in business confidence, despite its commodity intensive economy. According to the fixed investment index for Australasia, 41% of respondents said they would increase capital spending in the next 12 months, only slightly down from 45% from the July survey. Employment and sales confidence for the next 12 months also remained steady with only slight declines of 2.3 points and 2.0 points for a total of 58.9 and 68.9 points, respectively.
YPO Global Pulse Confidence Index
The quarterly electronic survey, conducted in the first two weeks of October 2015, gathered answers from 1,915 chief executive officers across the globe, including 224 in Asia and 115 in Australasia. Visit www.ypo.org/globalpulse for more information about the survey methodology and results from around the world.
YPO (Young Presidents' Organization) is a not-for-profit, global network of young chief executives connected through the shared mission of becoming Better Leaders Through Education and Idea Exchange(TM). Founded in 1950, YPO today provides 23,000 peers and their families in 130 countries with access to unique experiences, extraordinary educational resources, access to alliances with leading institutions, and participation in specialized networks to support their business, community and personal leadership. Altogether, YPO member-run companies employ more than 15 million people around the world and generate US$6 trillion in annual revenues. For more information, visit www.ypo.org.
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