JOIN USAsia’s top companies, especially those in the export engines of China, Japan and South Korea, are wary about their business outlook while Southeast Asia is outperforming as a result of strong domestic consumption, the latest quarterly Thomson Reuters/INSEAD Asia Business Sentiment Survey showed.
Global economic uncertainty ranks as the chief business risk across all sectors and all countries, as it has for the past year and a half, and is mainly responsible for the cautious sentiment despite a flood of global liquidity benefiting most economies. The Thomson Reuters/INSEAD Asia Business Sentiment Index rose to 65 in March from 63 in December, when it edged up by 1 point from the September survey. A reading above 50 indicates an overall positive outlook.
Business sentiment in Southeast Asia’s $1.5 trillion economy was mostly optimistic, thanks to government-driven investment in infrastructure and robust domestic spending. Malaysia and the Philippines were the most positive with readings of 100 each. This was the second consecutive quarter of maximum scores for both countries. “I think the good news so far this year is just kind of consistency. We have continued to see modest upgrades to GDP forecasts for Malaysia, Philippines and to some extent, Indonesia,” said Gary Dugan, chief investment officer for Asia and the Middle East at private bank Coutts.The availability of adequate funding is driving growth in Southeast Asia. “Domestic consumption across most ASEAN countries has been very robust and I think that’s the key reason why the domestic businesses are confident,” said Hozefa Topiwalla, ASEAN equity strategist at Morgan Stanley. Unlike in previous cycles when funding was a big constraint, there is no impact on funding for corporates, Topiwalla said.
India loses steam
Citing rising costs as the biggest hurdle, companies in India tempered their outlook to pull the index down to 80 from December’s level of 100. Companies in China, Japan and South Korea were the least positive, with index readings of 50. The result from China was a steep drop from the 64 recorded in the fourth quarter of 2012. The troubles facing major consumers such as Europe and the United States have hit export-reliant economies, with South Korean exports falling sharply last month.
Across the Asia-Pacific region, rising costs were the second greatest business risk, ahead of regulatory uncertainty, political instability and foreign exchange volatility. The index for financials rose to the highest in a year, with four firms reporting a positive outlook and none a negative view.