* Sentiment index rose to 63 in Q4 from 62 in Q3
* Biggest concern is global economic uncertainty
* Southeast Asian companies most positive
* Defensive sectors such as food most positive
* Airlines, building most negative industries
By Miyoung Kim
SEOUL, Dec 19 Business sentiment among Asia's
top companies improved slightly in the fourth quarter, reversing
two consecutive quarters of declines, while global economic
uncertainty remained the biggest concern for the region's firms,
a Thomson Reuters/INSEAD survey showed.
The Thomson Reuters/INSEAD Asia Business Sentiment Index
rose to 63 in the fourth quarter from 62 in the third
quarter of 2012, having peaked at 80 in the first quarter of
2011. A reading above 50 indicates an overall positive outlook,
while one below 50 points to pessimism.
The results showed a stark contrast between companies in
Southeast Asia, a region of about 600 million people now
benefiting from an increase in foreign investment and which
showed some of the highest positive readings, and
manufacturing-heavy northeast Asia, which is more susceptible to
the global economic downturn and had some of the lowest index
China, where exports support an estimated 200 million jobs,
showed the most positive response in the northeast Asian region,
but companies in other export-focused economies such as Japan,
South Korea and Taiwan remained more cautious.
"External risk factors that may pose problems in Asia are
European debt crises re-escalating and if U.S. growth
disappoints," said Juuso Mykkänen, chief executive of JOM Fund
Management Ltd in Helsinki, which is running an investment
company that have funds focused on investing in Asia.
"Asian own-risk factors are political ones that should be
watched carefully. Territorial disputes should be also watched
The index surveyed more than 100 of the Asia-Pacific
region's top companies in 11 economies. There were 96 responses.
The poll, conducted by Thomson Reuters in association with
INSEAD, a global management and business school, was compiled
between Dec. 3-14 and covered sectors such as autos, finance,
property, resources and technology.
Indonesia, India, Malaysia and the Philippines all had the
maximum scores of 100, followed by Thailand and China, whose
indexes improved to 75 and 64 respectively from 64 and 50 in the
previous quarter. South Korea also showed a sharp improvement
from 20 to 50.
"Indonesia will remain our favourite destination in Asia due
to very attractive structural forces in play currently. However,
having said that, we have tactically increased weight in China
in recent months as cyclical factors are on our side and
valuations remain very compelling," said Mykkänen.
In contrast, companies in Taiwan were the most negative in
Asia with a 33 index reading, the lowest level since the third
quarter of 2011. It also compared with a reading of 40 in the
Companies in Japan were the second-most negative, with a
reading of 44 compared with a third-quarter reading of 48. It
was the lowest reading in a year, underscoring the slow pace of
recovery in the world's third-largest economy.
Many economists are betting Japan will ease monetary policy
this week to pull the country out of a shallow recession, a
Reuters poll showed.
Japan's economy recovered earlier this year from damage
caused by March 2011's devastating earthquake, tsunami and
subsequent nuclear crisis on spending for reconstruction.
As that boost tapered off, and the global slowdown hit
Japan's export markets harder, the economy suffered a second
straight quarterly contraction in July-September, putting it in
a technical recession.
Offering a glimmer of hope, sentiment in the auto industry,
a core part of Japan's manufacturing base, improved to 60 in the
fourth quarter from 50.
DEFENSIVE SECTORS MORE POSITIVE
As uncertainty over the global economy persists, with the
so-called "fiscal cliff" impasse in the United States now adding
to the debt crisis in Europe, companies in defensive industries
such as food showed more positive sentiment.
Asian companies are closely awaiting the result of
last-minute negotiations in Washington on the fiscal cliff --
nearly $600 billion of tax increases and spending cuts set to
take effect in January that could cause a sharp slowdown in
growth or even tip the United States into recession.
"Generally in Southeast Asia we are focusing on the consumer
sector due to rising wages, the infrastructure/construction
sector, property developers, some insurance companies as they
have very low valuations and good growth prospects due to low
starting value," said Mykkänen.
The food sector was the most positive among industries, with
a reading of 77 compared with 73 in the third quarter, followed
by the drug sector with a reading of 72, although that was a
decline from the 80 recorded in the third quarter.
The retail sector also posted a solid improvement, with its
index reading rising to 75 from 50 in the third quarter, with
four participants saying they were positive and the remaining
four neutral, as the industry gears up for the year-end shopping
Fast Retailing Co Ltd, the operator of the Uniqlo
casual clothing chain, reported a nearly 14 percent jump in
November same store sales in Japan due to strong sales of its
down jackets and winter wear. Its shares hit 2012 highs this
week, fuelled by solid earnings recovery.
The shipping industry also saw an improved reading to 67
from 50, with none of the six shipping companies polled being
bearish. None of them said they were worried about rising costs
or foreign exchange volatility, and most of expected customer
payments to remain the same.
In contrast, the airline and building sectors were the most
negative with index readings of 0 and 25 respectively.
High fuel prices and regulatory uncertainty remain concerns
for Asia-Pacific air carriers, while global economic uncertainty
threatens to curb long-haul travel.
(Additional reporting by Janeman Latul in JAKARTA and Anurag
Kotoky in NEW DELHI; Editing by Alex Richardson)