Business sentiment among Asia's top companies dropped sharply in the fourth quarter, extending last quarter's declines, with global economic uncertainty and rising costs weighing on the region's firms, a Thomson Reuters/INSEAD survey showed.
The Thomson Reuters/INSEAD Asia Business Sentiment Index fell to 62 in the fourth quarter from 66 in the third quarter of 2013, the lowest reading since the third quarter of 2012. A reading above 50 indicates an overall positive outlook.
Sentiment in Southeast Asia's $1.5 trillion economy was undermined by political turbulence in Thailand and a typhoon in the Philippines, causing dismal readings of 40 and 58 respectively, which were the lowest for both countries since the poll was first compiled in 2009. Although China and India's bullish scores of 75 and 82 respectively supported the index, export-driven north Asian economies such as South Korea as well as regional trading hub Singapore also showed weaker readings, underscoring still-anaemic global business conditions.
"The global economic recovery is still very fragile," Zhang Shiyuan, an economist at Shanghai-based Southwest Securities Co said. "There is a fundamental problem that there's still too much debt. It's a time bomb that may be detonated if monetary and fiscal policies don't coordinate well."
The survey showed that the auto sector was the most negative with a reading of 33, a sharp drop from 63 in the previous quarter, followed by the food and resources sectors with fourth-quarter scores of 50.
The index surveyed more than 100 of the Asia-Pacific region's top companies including Hyundai Heavy Industries, Fast Retailing and International Container Terminal Services Inc (ICTSI) in 11 economies, across sectors including property, financials and tech.
Southeast Asia hit, China & India support
Among ASEAN countries that had remained comparatively upbeat earlier this year, Malaysia remained the only bright spot with a score of 75, up from 69 in the last quarter. In contrast, companies in Thailand were the most negative in Asia with a 40 index reading, plunging from 71 in the previous quarter as signs of prolonged political uncertainty due to anti-government protests against Yingluck Shinawatra's ruling party hit business sentiment.
Corporate sentiment in the Philippines tumbled to 58 from the maximum score of 100 in the previous quarter due to the devastating effects of typhoon Haiyan in early November that killed more than 5,200 people and destroyed an estimated 24 billion pesos ($543.60 million) in crops and infrastructure.
Among north Asian economies, Japan retreated to a fourth-quarter score of 55 from 63 in the previous quarter as the buzz around Abenomics deflated. The outlook in South Korea remained steady at a neutral 50.
A glimmer of hope came from China, the world's second-largest economy, which showed an uptick in fourth-quarter sentiment to 75 after holding steady at 50 earlier this year.
"The companies appear to be upbeat on the expectation that overseas demand for Chinese exports will improve. Hopes stemming from the government's reform measures announced in Q3, and rising income levels that could drive spending, are also causes for positive sentiment," said Cui Hongmei, a China market analyst at Seoul-based Daewoo Securities Co.
India's bullish outlook also supported the index, with a fourth-quarter score of 82 compared to 67 in the previous quarter as improving manufacturing conditions in the 1.3 billion-strong country shrunk the trade deficit by 23 percent between April-November 2013.
Rising costs weigh on defenses
Broken down by sector, builders in Asia were the most bullish with a maximum reading of 100 for the second consecutive quarter, followed by pharmaceuticals and property sectors with readings of 75.
Defensive sectors such as food and retail were both down from the previous quarter to readings of 50, as companies cited rising costs as their biggest risk.