Hong Kong SMEs turning less optimistic on business outlook

Here are their top worries.

According to a report by StanChart, small and medium-sized enterprises (SMEs) in Hong Kong are less optimistic than they were a quarter ago. The Standard Chartered Hong Kong SME Leading Business Index (SME Index), jointly released by Standard Chartered and the Hong Kong Productivity Council, declined to 50.8 in Q2-2014 from 53.4 in Q1-2014.

The dip in the headline reading partly reflects renewed worries about growth in the US and China. Seasonality also likely played a role – the index showed a similar drop after the Lunar New Year in Q2-2013, albeit to a lesser degree. The outlook for margins deteriorated the most among the five main index components.

Here's more:

The good news is that hiring, investment and sales expectations remain comfortably in growth territory, keeping the headline index above the 50 neutral mark. The cost environment remains challenging for our SME respondents, with financing costs and rents showing deterioration.

The manufacturing sub-index eased to 51.8 following a strong jump to 58.4 the previous quarter. The latest manufacturing reading, at 48.1, is still higher than the Q4-2013 level – much like the overall index. More encouragingly, the import/export/wholesale sub-index improved to 51.5 from 50.9 in Q1-2014 and 49.4 in Q4-2013. This suggests that improving sentiment remains the underlying trend.

We expect this to continue in 2014 as economies in the West recover further and China’s growth stabilises. The retail sector sub-index dipped to a still-healthy 51.0 from 53.2 due to weaker sales and margin expectations. All three main industry sub-indices are above the 51.0 mark, suggesting positive growth momentum for the Hong Kong economy in the coming quarter.

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