Here's why you should watch the Asian business sentiment index next time Australia's outlook appears gloomy

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This won’t surprise anyone who’s been watching the National Australia Bank’s Business Survey lately, but the latest Thomson Reuters/INSEAD Asian Business Index showed that while Asian business sentiment was steady at 71 during Q1 (just down from 72) Australian sentiment tanked from 85 to 70.

While 85 was the highest level in the survey’s short history, the Australian respondents – there were 15 of the 111 in the ABI survey – said “new orders and employment levels improved from the previous quarter, with one-third reporting increased staff”.

That’s pretty positive really, even if it seems a little contradictory. Even though sentiment pulled back from the highs, which is consistent with the recent dip in the NAB Business survey, the fact that hiring intentions are still positive means this is a fall from a high, rather than a crash in sentiment. And when you look at the other nations, you realise Australia is pretty upbeat.

Across the rest of the region Indian (97, down from 100) firms are the most positive, while Chinese (54, up from 50) and Singaporean (50) are least positive. South Korea dropped to 68, Taiwan dropped to 67, Thailand printed 79, the Philippines and Indonesia both came in at 75, while Malaysia printed 64.

On balance, leaving aside China and Singapore, the overall responses are not as bad as might have been, given the headwinds faced by the region and global economy. Indeed rising costs in a world of de/disinflation and global economic uncertainty are gale force.

The break up between participants across the region is also interesting in that 96% of respondents said they were either neutral or positive about the outlook.

What’s interesting about this Asian business sentiment index, even for the smallish sample size of respondents for such a big economic region, is the “vibe thing” – those RBA animal spirits – revealed in it.

Investors might like to keep an eye on it going forward, especially for the strength of the correlation with the MSCI Asia-Pacific index of stocks.

I’ll be paying a lot more attention in future.

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