Only one in five SMEs say Hong Kong is in the midst of a downturn

SME confidence has finally recovered.

According to Standard Chartered, the positive sentiment lacking in 2015 and 2016 appears to be abundant four months into 2017. Animal spirits are back, supported by strong US growth, a rebound in Asia exports, a stabilising China, and booming asset markets.

Here's more from Standard Chartered:

On the back of these drivers, the global economy and financial markets have been enjoying a surge in confidence, prompting a recovery in sentiment among Hong Kong SMEs.

The Standard Chartered Hong Kong SME Leading Business Index (SME Index), released jointly by Standard Chartered Bank and the Hong Kong Productivity Council, has risen to 45.6 in Q2-2017 from 41.9 in Q1 (50 = neutral). This is the highest reading since Q3-2015, and the improvement is broad-based: all but one main index component (hiring) and one industry sub-index (retail) are up from Q1.

However, the SME Index headline is still below 50 and sentiment indicators elsewhere have been doing better (China’s manufacturing PMI nearly reached a five-year high in March, for example).

This indicates that Hong Kong SMEs have been cautious in fully embracing the newfound global optimism – rightly so, in our view. Globally, the positive drivers may not be enough to deliver a multi-year economic boom and geopolitical risks are unlikely to fade any time soon. Locally, markets need to brace for higher interest rates as the Fed may keep hiking until it cannot afford to.

Twice a year, we ask SMEs about their outlook for Hong Kong’s business cycle and the risk of having to shut down their businesses if challenges persist. Only 19% of respondents now say Hong Kong is in the midst of a downturn; another 66% see lingering instability, at worst.

Among these two categories, only 10% see a risk of shutting down their businesses if the economic challenges persist for a year; this is an improvement from 14% six months ago and 20% at the same time last year.