New | Asian business sentiment turns cautious amid worries over global economy
Chinese firms the least optimistic for first time in nine quarters while Thailand businesses the most optimistic in region as they adjust to coup
Sentiment at some of Asia's biggest firms has deteriorated as a slowing Chinese economy, Greek sovereign debt crisis and looming US interest rate increase create deepening concern about the state of the world economy, a survey by Thomson Reuters and business school INSEAD has found.
Their Asian Business Sentiment Index fell to 70 for the second quarter of this year, from 71 in the first quarter of the year and 74 in the second quarter of last year. A reading over 50 indicates an overall positive view.
Though gradual, the decline suggests the wait-and-see approach of top businesses is evolving from a passing phase to ingrained cautiousness as questions persist about the structural soundness of economies in China, Europe and the United States.
"Progress in some areas is compensated by increasing risks in another," INSEAD Professor Antonio Fatas said. "There is increasing concern for China and possibly for other emerging markets in the region as the US Federal Reserve starts raising rates. There is no great excitement to compensate for the risks of the region and the broader world economy."
Companies in India recorded the steepest fall in confidence, logging 84 from 97 in the previous quarter, as fervour over the election of pro-business Prime Minister Narendra Modi last year gives way to anxiety about whether two rate cuts this year can reignite a sluggish economy.
The biggest gainer was Thailand, scoring 94 versus 79, as firms adjusted to the disruption of a military coup in May last year as well as two rate cuts which the central bank said had stabilised the economy.
Chinese firms were the least optimistic for the first time in nine quarters, with a score near flat at 55.
The poll was conducted from June 8 to 20. Of 117 respondents, 40 per cent were positive - from 45 per cent in the previous quarter - while 60 per cent were neutral. None were negative.
The biggest risk respondents cited was global economic uncertainty, followed by rising costs. Other risks included regulatory uncertainty and rising competition.
Property saw the steepest fall in sentiment of any sector, scoring 77 from 88. Record-low interest rates lifted demand, but a consequent surge in prices has led to speculation that the sector has become over-valued.
Adding to concerns is the impact on demand of the first Fed rate increase in a decade, which is widely expected in September.
"Normally property sentiment goes down when interest rates start to go up, and we haven't seen any of that," AMP Capital chief economist Shane Oliver said. "This is a global phenomenon where we've got very low interest rates and that's helped buoy property markets and development activity, but by the same token there's been a lot of talk that property bubbles might reinflate."
The building sector meanwhile latched onto immediate demand spawned by low rates, recording the survey's brightest outlook of 86, from 79. Unlike property developers, builders are less susceptible to fluctuation in property retail prices.
The shipping, finance and automotive industry sectors logged the lowest sentiment readings of 56, 57 and 58 respectively.
