But concerns persist over rising costs and the state of the global economy.
The quarterly Thomson Reuters-INSEAD Asia Business Sentiment Index jumped to 74 from 57 in the fourth quarter of 2011. The index was the highest since the first quarter of last year. A reading above 50 indicates an overall positive outlook.
More than half the companies that responded to the survey said their outlook for the next six months was positive compared with fewer than a third in the fourth quarter.
The index was compiled between March 12-19 from a poll of more than 100 senior executives at Asia's top companies representing industries from autos and banks to technology, resources and property. It was the first poll conducted by Thomson Reuters in association with INSEAD, a global management and business school in Singapore and France.
JUMP TO POSITIVE
"Last year, there was all this talk about Europe blowing up and hard landings in the United States and China. Some of those fears have faded," said Shane Oliver, chief economist at AMP Capital Investors in Sydney.
"It's the whole package of better news about the global economy which has probably led to improved sentiment. It would be wrong to say it was just Europe, or just the U.S," said Oliver, noting markets have improved, there is additional liquidity and the cost of funding has leveled off or come down.
"There's always a risk that it's a temporary blip ... but I think this year will see a continued improvement as we've probably seen the worst of the inflation front across Asia, which should lead to easier monetary conditions, leading to more confidence about growth," he said.
The biggest risks to the business outlook across Asia are rising costs and broad economic uncertainty, the poll showed.
Asia Business Sentiment: http://r.reuters.com/vyf53p
Survey in PDF: http://r.reuters.com/bez27s
RACSI vs MSCI Asia-Pac:
Airlines polled in the survey topped the list of those concerned about rising costs due to higher fuel prices, ahead of resource companies, including Sinopec <0386.HK> (>> China Petroleum & Chemical Corporation) and Coal India (>> Coal India Limited), which are also worried about global uncertainty, and retailers.
Almost all the dozen financial companies polled said global economic uncertainty was the biggest risk, a concern echoed by half the 16 technology companies surveyed, which also cited worries about rising costs and foreign exchange volatility.
A range of other concerns were expressed such as weak consumer demand in Australia, regulatory uncertainty in India and a persistently strong yen in Japan.
David de Garis, senior economist at National Australia Bank in Melbourne, said stock markets and credit markets were recovering after the European Central Bank "has thrown a lot of money at the liquidity crisis in Europe".
"Capital markets have opened up again, people have been able to come back to the market for bank financing, so that's been a big plus, particularly to financial institutions," he said, noting Europe's debt crisis was not necessarily resolved. "It would be pretty brave to be making that claim."
A year on from the devastation wrought by an earthquake and tsunami, business sentiment at Japanese companies, including drugs firms Takeda (>> Takeda Pharma) and Astellas (>> Astellas Pharma) and steelmakers Nippon Steel (>> Nippon Steel Corp) and JFE (>> JFE Holdings Inc.), has improved to predominantly neutral from largely negative in the fourth quarter.
Companies have already started to ramp up capital spending in anticipation of increased domestic demand, prompting many manufacturers to upgrade their sentiment to neutral in January-March from negative previously. Still, only one Japanese firm of the 20 respondents reported a positive sentiment.
"The recent uptick in demand in the U.S. is contributing to improved sentiment in Asia, especially for export-led companies," said Juergen Maiar, a Vienna-based fund manager with Raiffeisen Euroasien Aktien, noting market share gains for South Korean export-led autos and electronics makers.
"If there's a significant slowdown in the U.S. and European economies it would hurt growth in Asia," said Maiar, adding high oil prices remain a concern, especially for economies like India which depend on oil imports.
Four respondents in Japan said currency volatility was a big risk. This was up from two from the last survey, but the result suggested that movements in the yen have had limited impact on sentiment even as the currency hovers near life highs versus the dollar and euro.
An expected slowdown this year in China, Asia's largest economy, has done little to shake business confidence as Chinese firms remain upbeat.
"Growth in China has slowed, but it hasn't collapsed, and that is central to all of Asia right now," said NAB's de Garis.
Eight Chinese firms said sentiment was positive, while the same number were neutral. However, one aviation company reported a marked deterioration in its economic view, swinging to negative from positive in October-December.
Most Chinese respondents cited rising costs as the biggest risk to their outlook, suggesting firms are wary of overheating in the economy even as Beijing this month trimmed its growth target to 7.5 percent this year, its lowest in 8 years.
Indian companies were more positive about their businesses, heartened by an expected pick-up in domestic economic growth in 2012/13 after a slump at the end of last year. Six firms were positive, up from four previously, while two were neutral.
Respondents were unfazed by central bank warnings of resurgent inflation risks, with only one of 8 respondents citing rising costs as a key risk to sentiment. Other concerns included economic and regulatory uncertainties.
(Writing by Matt Driskill; Editing by Ian Geoghegan)
By Aditi Shah and Naomi Tajitsu