Asia business sentiment drops, India optimistic but China, SKorea in dumps

Reuters Posted online: Wednesday, Sep 18, 2013 at 0000 hrs
Singapore : Business sentiment among Asia's top companies deteriorated in the third quarter, led by businesses in export engines such as China and South Korea, ending three consecutive quarters of improving sentiment, the latest Asia business sentiment survey showed, but India business sentiment bucked the negative trend.

FE Editorial : For sentimentís sake

The Thomson Reuters/INSEAD Asia Business Sentiment Index fell to 66 in the third quarter from 71 in the second quarter when it reached the highest level in more than a year. An index reading above 50 indicates an overall positive outlook.

Asia business sentiments, 2013

Some of the weakest readings came from north Asia's economies of China, South Korea and Taiwan, and regional trading hub Singapore, all of which turned in readings of 50 - highlighting the impact of a stuttering global economy.

Optimism returned to India, lifting its sentiment index moderately higher at 67 after a drop last quarter.

"Asian companies are still maintaining a relatively cautious outlook regarding their earnings growth prospects," said Fan Cheuk Wan, chief investment officer for the Asia-Pacific region at Credit Suisse's private banking and wealth management unit. "It could be partly related to the recent volatility across the emerging economies over the past three months."

Asian equities, currencies and bonds have taken a beating over the last few months after the U.S. Federal Reserve hinted it would halt its nearly five-year policy of flooding markets with cheap cash.

"This market volatility also inevitably has an impact on the perception and business sentiment of Asian corporates as they are still assessing the global growth outlook," Fan said.

The survey showed that shipping and financial sectors were the most negative with a third-quarter score of 50, a sharp drop from the shipping industry's reading of 80 and financials' reading of 78 in the second quarter.

The poll surveyed more than 100 executives in 11 Asia-Pacific countries across sectors including autos, financials, resources, food and retail.

Of the 90 companies that replied to the poll, held between September 2-13, two-thirds reported a neutral outlook, just less than one-third were positive on their prospects and about 1 percent reported a negative outlook.

China showed no signs of improvement, with business sentiment staying flat for a third consecutive quarter as all eight companies surveyed said their business outlook remained neutral.

However, markets have been comforted by the latest batch of economic data, adding to evidence that China may have avoided a sharp slowdown.

"We do know that Europe continues to struggle and there was a soft patch a few months ago in China," said Craig James, chief economist at Commonwealth Securities in Sydney. "There's also the fact that while there's a recovery underway in the United States, it's somewhat patchy.

"So I think the export-orientated economies are basically suffering as a result of that," James said. "The good news is more recent data seems to suggest a little bit more momentum returning to some of the major economies and regions but there is a lag in effect."

As recently as a month ago, investors were worried that China's economy was slipping into a deeper-than-expected downturn. But policymakers have stepped in with measures to steady the economy, from quicker railway investment and public housing construction to introducing policies to help smaller companies with financing needs.

The survey showed that business confidence was steady in Japan at 63, its highest point since June 2010 among the 20 companies surveyed, which included Canon Inc and pharmaceutical firm Daiichi Sankyo.

"If we look at forward-looking indicators, we do see quite solid evidence showing that the global growth recovery should be providing support for an improved growth outlook for Asia," said Fan from Credit Suisse.

Companies in Indonesia were the most negative with a reading of 25, a sharp drop from its second-quarter reading of 100 when it was one of the most positive.

Indonesian companies are seeing an increase in their borrowing costs, with the central bank's surprise hike in interest rates last week. Wallowing near a 4-1/2-year-low, the Indonesian rupiah is the worst performer in Asia this year among currencies, having lost around 16 percent against the dollar.

However, there are some bright spots in Southeast Asia. The Philippines was the most positive economy with a reading of 100 - the only economy with a top score - compared to its reading of 94 in the second quarter. Australia was the second-most positive with a reading of 79, up from 75.

HIGHLIGHTS - by economy

SYDNEY (Reuters) - Asia's top companies were less upbeat about their business outlook in the third quarter of 2013 as concerns about the global economy and rising costs dampened sentiment, the latest Thomson Reuters/INSEAD Asia Business Sentiment Survey published on Wednesday showed.

Global uncertainty on when the U.S. Federal Reserve will taper its $85 billion bond buying program and geopolitical tensions in Syria have spooked markets, dealing a blow to business outlook.

The Thomson Reuters/INSEAD Asia Business Sentiment Index fell to a reading of 66 in September from 71 in the second quarter. A reading above 50 indicates an overall positive outlook.

AUSTRALIA: MODERATELY HIGHER (Index at 79 vs 75 Q2)

Corporate confidence in Australia rose to match highs hit in the first quarter of 2012 as the conservative coalition won a landslide victory in the federal election, bolstering sentiment. Incoming Prime Minister Tony Abbott has declared Australia as "open for business".

Of the seven respondents, four were positive while three remained neutral about the business outlook. In the previous quarter there were 14 respondents, with seven neutral and seven having a positive outlook.

The majority of respondents cited global economic uncertainty as their main source of concern and said the number of new orders remained the same.

CHINA: STEADY (Index at 50 vs 50 Q2)

Business sentiment in China remained flat for a third consecutive quarter as all eight companies surveyed said their business outlook remained neutral.

Five respondents cited the world economy as their biggest concern while the remainder flagged rising costs as their primary worry. One respondent reported a rise in employment compared to none last quarter while three said new orders had increased.

INDIA: SLIGHT IMPROVEMENT (Index at 67 vs 63 Q2)

Optimism returned to India, lifting its sentiment index moderately higher after a drop last quarter.

Three respondents said their main concern was a shaky world economy while a rout in the rupee in August also rattled sentiment with a third of companies worried about foreign exchange rates. Two respondents reported a lift in employment while five said new orders had risen.

Political instability was also cited as a concern from one company.

Lupin Pharmaceuticals Ltd, India's fourth-largest drugmaker by sales, and electricals retailer Godrej & Boyce were among the participants.

JAPAN: STEADY (Index at 63 vs 63 Q2)

Business confidence remained steady in Japan at 63, its highest point since June 2010 among the 20 companies surveyed, which included tech giant Canon Inc and global pharmaceutical company Daiichi Sankyo.

Half the respondents said global economic uncertainty was a primary concern while the remainder cited rising costs and exchange volatility as roadblocks to any moves higher. Two companies saw an increase in employment while two had decreased; the remaining 16 saw the same levels as the previous quarter.

SOUTH KOREA: SIGNIFICANTLY LOWER (Index at 50 vs 64 Q2)

Corporate sentiment slumped to 2013 first-quarter lows of 50, as six of the nine respondents said global economic uncertainty was the biggest risk to businesses this quarter.

Four companies said it saw a rise in new orders while the remainder stayed the same. In employment, one company said its levels of employment increased but the remaining eight were unchanged.

Hyundai Heavy Industries Co was among the participants in the survey.

TAIWAN: DOWNBEAT(Index at 50 vs 67 Q2)

Taiwan saw its business sentiment slump to 50, its lowest point since the fourth quarter in 2012. Electronics company Acer Incorporated was among those surveyed.

Eighty percent of respondents said the biggest risk to businesses was global economic uncertainty while the remainder cited rising costs as their primary concern.

Two companies said employment levels had increased, while one reported a rise in new orders, a slight improvement from last quarter.

SOUTHEAST ASIA (Phillipines at 100 Vs 94; Thailand at 71 vs 42; Malaysia at 69 vs 83; Singapore at 50 vs 83; Indonesia at 25 vs 100)

Sentiment in Southeast Asia was mostly upbeat with the Phillipines posting unanimous confidence across all 12 companies surveyed, an uptick from the previous quarter.

Businesses in Thailand were mostly positive, strengthening from multi-year lows hit last quarter, with three positive about business outlook and four remaining neutral.

Both Malaysia and Singapore fell from the previous quarter with the majority of businesses in both countries citing uncertainty in the global economy as the biggest risk.

Indonesia had the lowest index score, slumping from last quarter's perfect outlook as businesses cited domestic inflation and global uncertainty for a bleak outlook.

HIGHLIGHTS-Asia Q3 Business Sentiment Survey - by sector

SEOUL (Reuters) - Asia's top companies were less upbeat about their business outlook in the third quarter of 2013 as concerns about the global economy and rising costs dampened sentiment, the latest Thomson Reuters/INSEAD Asia Business Sentiment Survey published on Wednesday showed.

Global uncertainty on when the U.S. Federal Reserve will taper its $85 billion bond buying program and geopolitical tensions in Syria have spooked markets, dealing a slight to business sentiment.

The Thomson Reuters/INSEAD Asia Business Sentiment Index fell to a reading of 66 in September from 71 in the second quarter. A reading above 50 indicates an overall positive outlook.

PROPERTY: BEST AMONG ALL SECTORS (INDEX AT 100 V 83 IN Q2)

The property and building sectors were the most bullish with readings of 100 each. All of the 10 property firms polled painted a rosy outlook, bringing the index to the full mark for the first time since the fourth quarter of 2009.

Eight respondents said new orders were higher while seven said employment levels improved. The Philippines' Ayala Land Inc was among the companies surveyed.

BUILDING: SHARP REBOUND (INDEX AT 100 VS 50 IN Q2)

The confidence level for builders made a sharp rebound, making the steepest gain among all sectors. While all three respondents projected a bright outlook, they said employment levels remained the same as risks loomed about higher costs. Construction materials maker James Hardie Industries was one of the respondents.

FOOD: GOING STEADY (INDEX UNCHANGED AT 75)

Food and beverage companies remained upbeat about their projections, although currency volatility and rising costs remained worries. Five companies had a positive outlook, while an equal number of firms expressed neutral views.

Seven reported an increase in orders while three said they remained the same. Japan's Asahi Breweries and the Philippines' Universal Robina were among the participants.

RESOURCES: BOUNCING BACK FROM DIP (INDEX AT 72 VS 66 IN Q2)

The reading among resources companies bounced back from the second quarter, with four firms predicting a better outlook and five holding a neutral view. Six respondents said orders remained steady, while the other three said orders went up. Thailand's Banpu PCL was among those polled.

AUTOS: RECOVERY PATH (INDEX AT 63 VS 56 IN Q2)

The index for automakers in Asia improved for a second consecutive quarter, although global economic uncertainty remained a major risk. Two respondents were optimistic about their outlook, while the other two were neutral or negative.

TECH: OPTIMISM WEAKENS (INDEX AT 62 VS 75 IN Q2)

Fewer technology firms had an upbeat outlook in the third quarter, pulling down the index. Three companies had a positive outlook in the third quarter, while eight had an upbeat view in the second quarter.

Three firms cut employment levels, while the other 10 maintained or lifted the current headcount. Japan's Toshiba and NTT DoCoMo were among those who joined the survey.

DRUGS: REMAIN AT OVER 2-YEAR-LOW (INDEX UNCHANGED AT 60)

Currency volatility and global economic uncertainty hampered the recovery of the confidence for drug makers, which remained at its lowest level since the first quarter of 2011.

Four respondents were neutral on their outlook, while one was positive. The participants include India's Lupin Ltd and Japan's Daiichi Sankyo Co Ltd.

RETAIL: COOLING (INDEX AT 57 VS 69 IN Q2)

The mood among retailers deteriorated from the preceding quarter, as six out of seven polled were neutral on their forecasts and only one was bullish.

Rising costs were the biggest concern for the respondents, which included Japan's Seven & I Holdings and Fast Retailing.

FINANCIALS: BIG DECLINE (INDEX AT 50 VS 78 IN Q2)

The financial sector, along with the shipping industry, was the most negative with its business confidence dropping to its lowest level in three quarters.

All of the 21 respondents were neutral about their outlook, although most of them said sales had remained steady or increased. Alliance Financial Group took part in the survey, among others.

SHIPPING: LOSING STEAM (INDEX AT 50 VS 80 IN Q2)

The sentiment in the shipping-related sector suffered the biggest fall as concerns about global economic uncertainty weighed on Hyundai Heavy Industries and other companies. All eight respondents held a neutral outlook despite orders rising or remaining steady.