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HKTDC Export Index 2Q19: Uncertain Market Environment Sees Exporters Opting for Caution podcast

  • The HKTDC Export Index edged down to 37.3 in 2Q19, indicating that the uncertain market environment is likely to hamper Hong Kong’s export growth over the near term. As the drop was relatively small – 1.9 points – this may suggest that the fall in exporter confidence has now plateaued.

  • Exporters from the major sectors are also more cautious than they were in 1Q19. Machinery remained the most positively rated sector at 38.9, followed by jewellery at 38.2 and electronics at 37.8. Toys exhibited the largest drop in confidence, with its reading plunging by 9.4 points to 32.

  • As for the prospects of individual markets, Asia is seen as likely to be the best performer overall in the coming months. Both Japan (49.6) and Mainland China (47.4) excited a degree of optimism, while exporters were less confident of the growth potential of the EU (46.8) and the US markets (42.7).

  • The subsidiary indexes, meanwhile, stayed in contractionary territory, with the Trade Value Index at 45.1, the Procurement Index at 44.9 and the Employment Index at 44.8.

  • With regard to the impact of the China-US trade dispute, 41.3% of respondents indicated that their exports had been negatively affected, with shrinking order sizes the most common consequence.

  • In terms of how the dispute is likely to play out over the coming months, exporters remained concerned as to any possible knock-on effect, with just over half of all respondents (54.7%) worried that their businesses might ultimately be affected.

Reflecting the continuing concern over the China-US trade dispute, the HKTDC Export Index edged down to 37.3 in 2Q19, falling from 39.2 in 1Q19. With the index staying in contractionary territory for the fourth consecutive quarter, the uncertain market environment is likely to negatively impact on Hong Kong’s export growth over the near term. Despite this, the relatively small 1.9 drop suggest that the pessimistic sentiment may have plateaued.

Chart: HKTDC Export Index
Chart: HKTDC Export Index
 

In line with the overall sentiment, exporters in many of the major sectors have become notably more cautious over recent months. Machinery remained the most optimistic sector (at 38.9) with regard to near term export prospects. While jewellery rebounded to 38.2, electronics dropped to 37.8 and clothing levelled at 32.6. The most substantial drop came in the toy sector, where the index fell to 32, a 9.4 fall from its 1Q19 showing of 41.4. Bringing up the rear, with the least positive reading overall was the timepieces sector (30.9).

PeriodHKTDC
Export Index
ElectronicsClothingToysJewelleryTimepiecesMachinery
2Q1937.337.832.632.038.230.938.9
1Q1939.239.732.341.433.535.542.2
4Q1835.235.930.324.330.534.036.6
3Q1835.835.432.843.638.543.542.5

 

Turning to expectations of the major markets, the wider Asian region was seen as likely to be the best performer over the coming months. For its part, Japan was still seen as the most promising market for Hong Kong exports, with its reading increasing to 49.6, taking it to just below the watershed mark of 50. Mainland China also enjoyed an uptick in optimism, taking its reading to 47.4. By contrast, exporters were less confident of growth in the EU and the US markets, with their readings dropping to 46.8 and 42.7 respectively.

HKTDC Export Index
by Market
USEUJapanMainland China
2Q1942.746.849.647.4
1Q1946.147.448.045.7
4Q1841.541.847.344.7
3Q1839.843.348.950.2

 

Despite the decline in confidence with regard to the likelihood of overall export growth in the coming months, exporters were notably more upbeat in their assessment of the prospects for offshore trade (i.e. shipments not passing through Hong Kong, but handled by Hong Kong exporters), with the Offshore Trade Index rebounding to 38.4 following its two-year low of 33.5 in 1Q19.

Chart: Offshore Trade Index
Chart: Offshore Trade Index

 

Judging by the fact the Trade Value Index edged down from 45.9 in 1Q19 to 45.1 in 2Q19, it seems likely that unit prices will face downward pressure over the near term. Machinery was the most highly rated at 46.3. Following a breath-taking 8.9 rally in the previous quarter, taking it to 55.7, belief that toy prices would grow or be sustained nosedived this time around, with its index falling by 9.6 points to a decidedly contractionary 46.1. Elsewhere, timepieces (45.1) enjoyed a minor upturn, while electronics (45.3) suffered a slight downturn. Languishing at the bottom of the league were jewellery (42) and clothing (41.4), with unit prices clearly with possibility of falling in both categories.

PeriodTrade Value IndexElectronicsClothingToysJewelleryTimepiecesMachinery
2Q1945.145.341.446.142.045.146.3
1Q1945.946.339.555.743.544.047.5
4Q1844.844.744.346.838.043.549.1
3Q1844.844.942.052.537.045.544.7

 

On the positive side, procurement sentiment appears to be a little more upbeat overall, with the Procurement Index rising from 44 in 1Q19 to 44.9 in 2Q19. Electronics (45.5) was the most positive sector in procurement terms, followed closely by machinery (45.1). Timepieces and clothing, both rated at 46 in the previous quarter, dropped to 41.2 and 40.7 respectively, while toys took the biggest hit, dropping 14.9 points to 40.1. In line with its performance over recent quarters, Jewellery remained the most subdued sector at 35.8.

PeriodProcurement IndexElectronicsClothingToysJewelleryTimepiecesMachinery
2Q1944.945.540.740.135.841.245.1
1Q1944.043.646.055.038.046.043.1
4Q1843.442.250.044.334.053.051.9
3Q1845.546.339.052.125.039.043.1

 

The Employment Index fell to 44.8 in 2Q19, dropping 4.1 points from its 1Q19 total of 48.9, indicating that exporters were lukewarm at best at the idea they might be recruiting any time soon. Overall, machinery was the most upbeat sector at 46.9, which placed it above the overall average, but still in the contraction zone. It was the same story with clothing (45.6), jewellery (45.3) and toys (45.1), while the poorest performers – and marginally below the overall average – were electronics (44.7) and timepieces (44.1).

PeriodEmployment IndexElectronicsClothingToysJewelleryTimepiecesMachinery
2Q1944.844.745.645.145.344.146.9
1Q1948.949.746.047.142.043.044.4
4Q1846.647.838.544.348.040.040.6
3Q1847.948.740.547.944.050.045.0

 

As to the likely impact of the lingering China-US trade dispute, 58.3% of respondents considered themselves likely to be unaffected, a reassuring 9.8 percentage points increase over the 48.5% expressing that sentiment in 1Q19. Similarly, only 41.3% of respondents believed their export level would have been higher but for the dispute, compared to 48.5% in 1Q19.

Chart: Up till now, what effect has the China-US trade friction had on your export performance?
Chart: Up till now, what effect has the China-US trade friction had on your export performance?

Among the exporters who indicated that the dispute had already had negative repercussions for their businesses, the most common complaints were smaller order sizes (52.4%) and buyers taking a harder stance when negotiating prices (39.9%). In terms of other consequences, 36.1% of exporters said they had to shift part of their sourcing activities away from the mainland, a more than double the 1Q19 figure of 15.3%. Additionally, nearly a quarter of all respondents (23.1%) said they had to bear the cost of the additional tariffs (23.1%), while 22.1% maintained the dispute had led to cancelled orders.

Chart: How is the China-US trade friction affecting your company?
Chart: How is the China-US trade friction affecting your company?

As to how the China-US trade dispute is likely to develop over the coming months, exporters remained wary that it could still have a damaging knock-on effect on their own businesses. In total, 54.7% of respondents confessed themselves concerned that the dispute could negatively impact on their trading prospects, a clear indication that it may represent the biggest threat to Hong Kong’s export performance over the near term. Despite the gloom of a narrow majority, some 44.3% of respondents remained positive that their exporting activities would remain unaffected over the coming months.

Chart: What effect do you expect the China-US trade friction to have on your export performance over the near term
Chart: What effect do you expect the China-US trade friction to have on your export performance over the near term

In light of the uncertainty occasioned by the dispute, exporters have become increasingly proactive when it comes to finding ways to mitigate its likely impact. The most widely-adopted approach is market diversification, with 58.6% of respondents (up from 54.1 % in 1Q19) indicating they were now looking for alternatives to the US with regard to export destinations. There has also been a sizable increase in the number of exporters (29.3% – up from 16.4% in 1Q19) invoking rules of origin protocols as a way of ensuring their products are deemed as originating from a jurisdiction outside the remit of the US supplementary tariff regime.

Chart: How is your company considering responding to the China-US trade friction?
Chart: How is your company considering responding to the China-US trade friction?

The HKTDC Export Index is designed to gauge the prospects of the near-term export performance of Hong Kong traders. Any Index reading above 50 indicates an upward trend and an optimistic outlook.

Content provided by Picture: Doris Fung
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