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Asia business sentiment rises in second quarter, global growth risk still dominates

A worker wearing protective glasses welds steel products at a heavy equipment manufacturing factory in Luoyang, Henan province May 1, 2013.
A worker wearing protective glasses welds steel products at a heavy equipment manufacturing factory in Luoyang, Henan province May 1, 2013.

By Miyoung Kim

SEOUL (Reuters) - Asia's top companies have become more optimistic about their business outlook with the retail and shipping industries rebounding sharply in the second quarter of 2013, the latest Thomson Reuters/INSEAD Asia Business Sentiment Survey shows.

The Thomson Reuters/INSEAD Asia Business Sentiment Index climbed six points to 71 in June, its highest level in five quarters and the third consecutive quarterly rise. A reading above 50 indicates a generally positive outlook.

Global economic uncertainty remains the biggest business risk across most countries and sectors, but 44 percent of the 91 companies that participated in the poll are now positive about their outlook, up from 30 percent in the prior quarter.

Corporate sentiment in China, the world's second-largest economy, remained unchanged at its record low of 50 as companies worried about rising costs and global economic uncertainty.

"If you go back a year ago, there is a lot of concern about the global economy - a hard landing in China, a collapse in Europe, and double dip in the U.S. Some of those fears are still around, but they have certainly faded over the course of last year," said Shane Oliver, chief economist at AMP Capital Investors in Sydney.

"So whilst companies in Asia still worry about China, it's about whether the growth is 7.5 percent or 7.8. Some of the more extreme fears that were seen a year ago continue to fade, showing a gradual pick-up in company optimism."

INDONESIA, JAPAN, AUSTRALIA, S.KOREA GAIN

Corporate sentiment in Japan showed solid improvement with the index rising to the highest level in three years as aggressive monetary stimulus starts to revive its economy.

Of the 19 Japanese respondents, which included Daiichi Sankyo Co Ltd <4568.T>, Toshiba Corp <6502.T>, Hitachi Ltd <6501.T> and Sharp Corp <6753.T>, five were positive on their outlook and 14 were neutral. In the previous survey, only one out of 22 participants was positive.

Australia and Indonesia saw big improvements in their outlook and were among the most optimistic economies in Asia.

Australia continued to improve in the second quarter, driving the country's sentiment index to its highest level since the first quarter 2012, although more participants were worried about the global economy.

"From a general point of view, it has a lot to do with the currency, interest rates going down, and the offshore news has been better," said Stephen Walters, chief economist at JP Morgan in Sydney.

"Of the three the currency is probably the main one. When the currency was over parity, it was quite painful for a lot of firms. So it follows when the currency is below parity they will feel a little bit less under pressure."

On the downside, business sentiment in India fell to its weakest level in more than three years, weighed down by worries about rising costs, while Thailand's sentiment index dropped to an all-time low of 42 from 60.

SHIPPING, PROPERTY, TECH UPBEAT

Broken down by sector, most industries showed steady growth, with property turning in its highest reading in more than two years. Sentiment in food, drugs and the resources industries fell.

Sentiment among shipping firms turned sharply upbeat, helping the sector register the best showing since the first quarter of 2012.

"Perhaps optimism is creeping back simply because we're tired of being pessimistic," said Tim Huxley, chief executive of Wah Kwong Maritime Transport Holdings Ltd in Hong Kong.

"Seriously, we are seeing a degree of optimism as there is a belief that the industry is working through its self-inflicted over-supply issues and that there might be some balance in 2014. It could prove to be a false dawn if there is too much ordering of new ships though."

Huxley said there was hope for an improvement in bulk-carrier rates in the fourth quarter with iron ore restocking and lower iron ore prices in China. He also said crude oil tankers have been able to maintain rate gains with owners resisting charter demands for lower prices.

Retail sentiment climbed the most after shipping to 69 from 50, while the technology industry's recovery gained momentum, climbing to its highest level in more than a year.

Confidence among food and beverage companies fell to 75 from the previous survey's record high of 88, as currency volatility and rising costs posed risks.

(Additional reporting by Maggie Lu Yueyang in SYDNEY and Ranjit Gangadharan in MUMBAI; Editing by Matt Driskill)

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