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HKTDC Export Index 1Q18: Confident Start to New Year

  • The HKTDC Export Index rebounded to 49.4 at the beginning of 2018, rising from 44.6 in 4Q17. This indicates the likelihood of growth in Hong Kong’s overall export performance over the near term.
  • Overall, exporters were confident of an improved export performance across a number of sectors. Timepieces, in particular, experienced a sharp rebound in confidence, showing the highest reading (57) among the key industries in 1Q18, followed by machinery (53.8) and toys (51.4).
  • Exporter sentiment also improved across-the-board with regard to the key export markets. While the Chinese mainland returned to being the most promising market with a score of 50.3, the EU remained a less appealing export market than many of the others at 49.1.
  • With the Trade Value Index edging up to 52.8 in 1Q18 (from 52.1 in 4Q17, seeing it remain in expansionary territory for the fourth consecutive quarter), unit prices may well be set to rise. With a reading of 67, the unit price for timepieces is seen as the most likely to rise.
  • In another development, labour cost pressures appear to have intensified on the Chinese mainland. In total, some 60% of respondents indicated they had experienced higher labour costs in the preceding three months, a rise from 49% in the previous quarter, although an increased number of respondents – 5% in 1Q18, up from 3% in 4Q17 – reported an actual decrease in labour costs.
  • In terms of any collateral damage caused to Hong Kong’s export performance by the on-going China-US trade friction, as yet this has not materialised. In total, 72.8% of respondents believed that any such friction would have no impact on their export performance, with only 25.8% expecting a negative outcome.
  • By contrast, the appreciation of RMB is already having a direct impact on Hong Kong’s exports. Overall, a sizable majority of respondents (69.4%) reported that the appreciation of the RMB had already had a negative impact on their businesses.

With the overall export level showing a modest growth of 8% for 2017 as a whole, Hong Kong exporters seemed to start 2018 in a notably optimistic mood. The HKTDC Export Index rebounded to 49.4 – a touch below the watershed level of 50 – in 1Q18, rising from 44.6 in 4Q17. Improving sentiment among the key industries, as well as toward the major overseas markets, suggested the likelihood of an improvement in Hong Kong’s overall export performance over the near term.

Chart: HKTDC Export Index
Chart: HKTDC Export Index

Tellingly, exporters in the six key industries showed increased confidence as to their likely export performance over the short term. This was most marked with regard to timepieces, where a sharp rebound in confidence delivered the highest reading of all the key industries (57 in 1Q18, up from 41.2 in 4Q17). Coming second and third to timepieces were machinery (53.8) and toys (51.4), with both venturing into expansionary territory. Things were less upbeat in the electronics (49.5), jewellery (44.1) and clothing (42.4) sectors where a degree of contraction was indicated. Overall, though, all of Hong Kong’s key exporting sectors are likely to enjoy something of an upturn compared to 4Q17.

Table: HKTDC Export Index
Table: HKTDC Export Index

In terms of export markets, exporter sentiment has also improved across-the-board. The Chinese mainland regained its position as the most promising market, with its reading increasing to 50.3, up from 48.2 in 4Q17. Following closely behind was the US (50.2), with the upturn witnessed in the previous quarter seemingly set to continue – a development that somewhat took the shine off Japan’s reading of 50. Despite its confidence level rising to 49.1 (compared to 47.5 in 4Q17), the EU remained in negative territory, dulling its appeal as an export market.

Table: HKTDC Export Index by Market
Table: HKTDC Export Index by Market

Although there is a favourable view as to the likely overall export performance in the near term – a development reflected in improved exporter sentiment – offshore trade (shipments not passing through Hong Kong, but handled by Hong Kong exporters) is expected to dip, as indicated by a fall in the latest Offshore Trade Index. Indeed, the decline in confidence with regard to offshore trade among Hong Kong exporters appears to have accelerated. This is highlighted by the fact that the Offshore Trade Index dropped from 48.2 in 3Q17 and 47.5 in 4Q17 to 44.1 in 1Q18.

Chart: Offshore Trade Index
Chart: Offshore Trade Index

With the Trade Value Index edging up to 52.8 in 1Q18 (from 52.1 in 4Q17, seeing it remain in expansionary territory for the fourth consecutive quarter), unit prices may well be set to rise. Among the key industries, the unit price of timepieces is seen as most likely to rise given its reading of 67, a significant increase over the 49.5 recorded in 4Q17. Higher unit prices are also expected in the toy (58.7), machinery (56.9), clothing (52.9) and electronics (52.4) sectors. Overall, only the jewellery sector proved to be downbeat, with the reading for its trade value dropping from 51.5 in 4Q17 to 46.6 in 1Q18.

Table: Trade Value Index
Table: Trade Value Index

The Procurement Index edged up marginally, rising to 46.7 compared to 46.2 in 4Q17, indicating a slight improvement in the overall procurement sentiment. In line with its optimism relating to export growth and higher unit prices, the procurement sentiment in the timepieces sector (56) was the highest of all of the key industries. Indeed, aside from timepieces, all of the other key industry sectors remained in negative territory with regard to procurement expectations, with machinery at 48.8, electronics at 47, toys at 43.8, jewellery at 42.2 and clothing at 40.2.

Table: Procurement Index
Table: Procurement Index

With the Employment Index rising to 47.8 (from 46 in 4Q17), the likelihood of increased recruitment is clearly indicated. In line with its performance across the other indices, the most positive employment sentiment was found in the timepieces sector, with the overall likelihood of recruitment rising to 54 (from 48 in 4Q17). Similarly in expansionary territory were two other sectors – jewellery (52.9) and machinery (51.9). By contrast, hiring intentions in the electronics (47.8), toys (45.1) and clothing (43.1) sectors were less positive, suggesting a possible contraction in employment levels over the near term.

Table: Employment Index
Table: Employment Index

Overall, at this stage, there seemed to be few concerns that the on-going trade-related friction between the US and China would have a negative impact on Hong Kong’s export performance. In total, 72.8% of respondents expected the situation to have no impact on their export performance, although 25.8% were more pessimistic. A very small number of respondents (1.4%) even believed that their exports could actually be boosted by this trade spat.

Chart: What effect do you expect on-going China-US trade friction to have on your export performance
Chart: What effect do you expect on-going China-US trade friction to have on your export performance

For the majority of traders, the appreciation of the RMB is seen as a much bigger problem than the fallout between Washington and Beijing. In total, 69.4% of respondents maintained that the rise in the currency’s value had had a negative impact on their export activities. Against this, 24.9% of respondents said the change in the exchange rate had had no impact on their business, while 5.8% saw it as having a positive effect on their export levels.

Chart: How has the RMB appreciation affected your export performance?
Chart: How has the RMB appreciation affected your export performance?

 

Content provided by Picture: Doris Fung
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