Asia business sentiment up in Q1, focus on Japan
Business sentiment at Asia's top companies rose in the first quarter to its highest level in eight quarters, with global economic uncertainty seen as the biggest risk to the positive outlook, a Reuters survey showed.
March 16, 2011 / 13:17 IST
Business sentiment at Asia's top companies rose in the first quarter to its highest level in eight quarters, with global economic uncertainty seen as the biggest risk to the positive outlook, a Reuters survey showed.
Friday's devastating earthquake and tsunami in Japan has further raised concerns about the global economy, with some analysts saying Japan may now slip back into recession, at least in the short term.The Reuters Asia Corporate Sentiment Index rose to 80 in the first quarter, up from 77 in the fourth quarter of 2010 and its highest level since Reuters began collecting data in June 2009. An index above 50 indicates a positive outlook.The index was compiled from a poll of 100 executives at Asia's top companies between March 4-14.The bulk of the 64 responses came in before the earthquake and tsunami. Eight companies, of which three were Japanese, replied after the initial disaster but before the extent of the damage to nuclear facilities and the risks of radioactive leaks emerged."The Japan situation has added to the headwinds facing Asian companies in the near term," said Helsinki-based Taina Erajurri, who manages USD 1.7 billion worth of emerging markets equities for FIM Asset Management.Business sentiment in Japan appeared to be shifting away from a bearish tone. More than two-thirds of the 18 Japanese companies in the poll, which included Panasonic and Daiwa Securities, were neutral about the outlook, with five positive.There were no negative responses compared with three in the fourth quarter. All three companies that replied to the poll after the earthquake said they were positive about the outlook, with one of these firms -- a technology firm -- shifting from a neutral stance in the December poll."Right now, looking at it, this (the earthquake) could be a medium-term stimulus for aggregate demand in Japan," said Steve Wood, chief market strategist at Russell Investments in New York."A lot of liquidity, a lot of spending, a lot of stimulus is going to come in, in response to this, to ease human suffering and to rebuild the infrastructure."The quake and ensuing tsunami knocked out roads, rail and ports as well as factories supplying everything from high-tech components to steel, forcing firms such as Toyota Corp and Sony Corp to suspend production.China, India positiveOf the 64 respondents in the survey -- market leaders in sectors such as autos, technology, finance and resources -- 36 said they were upbeat about the outlook for their business over the next six months.Four companies were 'very positive' and just one in Asia, a South Korean firm, had a 'negative' outlook. The rest were 'neutral.'"Businesses are relatively positive because the economy is stable, although we're unlikely to repeat this year the growth we saw in 2010," said Cheng-Mount Cheng, regional economist at Citigroup with a focus on Hong Kong and Taiwan.Asian economies will continue to grow strongly this year, even as Japan struggles with the aftermath of the earthquake and tsunami, ratings agency Standard & Poor's said on Wednesday."We expect the region to record another year of solid growth in 2011 after 2010 proved that Asia is emerging from the crisis in a strong position, even as the economic picture for Japan following the recent earthquake remains less clear," S&P Asia Pacific head Tom Schiller said. Chinese and Indian firms were the most upbeat about their business outlook, with the majority of companies either positive or very positive about the outlook.China and India could yet see decades more of strong growth, the Reserve Bank of Australia's governor Glenn Stevens said last week.It is this positive outlook that has bolstered sentiment in other Asian countries as well as sectors such as resources, shipping and financials.The Indian government, in its annual budget last month, said it expects India to grow at 9%, plus or minus 0.25% in the next fiscal year.In Australia, the corporate mood changed a bit, with five of the seven companies polled opting for a neutral stance in their outlook over the next six months, compared with mostly positive in the preceding quarter.Companies are cautious about the consumer outlook, despite a solid economy and low jobless rates. Australians appear to be saving more and spending and borrowing less due to higher energy bills and rising interest rates.Economic uncertainityTwenty-three firms said economic uncertainty was the big risk to the outlook, 17 cited rising costs and 20 said other factors such as high oil prices, regulation and inflation were the major concerns."Most Asian countries will have to cut back economic growth targets for this year due to high oil prices. In the near-term, we see a rise in oil prices and that will hurt countries like India that is a major energy importer," Erajurri at FIM Asset Management said.Central banks across Asia are under pressure to act to stave off inflationary pressures as crude oil prices stay near a 2-1/2 year high on unrest in the Middle East. China, South Korea, Vietnam and Thailand have all raised rates this year.India's headline inflation unexpectedly quickened in February on rising fuel and manufacturing prices, raising expectations for aggressive central bank tightening.Brokerages Morgan Stanley and Bank of America-Merrill Lynch recently lowered their growth forecasts for India's GDP to 7.7% and 8.2%, respectively, for the 2011/12 fiscal year starting in April.Still, Indian companies including realtor DLF and IT services exporter Infosys Technologies are upbeat about their business outlook over the next six months.Of the 13 financial firms in the poll, including Singapore's DBS, nine were positive and four were neutral about the outlook, a touch more positive than in the December poll.There were no negative responses from this sector for the first time since the second quarter of 2010.Sentiment in the technology sector meanwhile was slowly turning positive, with eight out of 13 firms positive, while efforts to cool the property market in parts of Asia weighed on sentiment in the property sector."Asian economies are strong and there is demand for homes, malls, serviced apartments and residences," said Basskaran Nair, a spokesman at Capitaland, Southeast Asia's largest property developer. "But governments don't feel comfortable with residential prices at this level." Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
