Standard Chartered SME Index Edges Down 1 Point to 48.5 Business Outlook for 2013 Q2 Cautiously Steady

Cautious and steady business sentiment will prevail for the second quarter of 2013, as the Overall Index of the “Standard Chartered Hong Kong SME Leading Business Index” (Standard Chartered SME Index) has edged down 1 point to 48.5. Releasing the latest readings today (10 April 2013), the Hong Kong Productivity Council (HKPC) noted that the Index is still close to the 50 no-change mark. The survey results also show that the new statutory minimum wage will have minimal impact on SMEs, and the pressure from rental hike will ease. However, nearly 70% of SMEs expect further rise in material cost.

Sponsored by Standard Chartered Bank (Hong Kong) Limited, the quarterly survey features an Overall Index comprising five Sub-Indices. In this quarter, the Sub-Indices for Investments, Staff Number and Sales Amount report no significant change and remain above 50, indicating continued optimism in all three aspects. For Profit Margin and Global Economic Growth Sub-Indices, both are below 50 with the former registering at 42.2 (down 3.4 points), suggesting a negative outlook over profit margin caused by rising material costs. The Global Economic Growth Sub-Index, on the other hand, has risen for three consecutive quarters, reaching a new high of 37.8. This suggests a gradual stablization of SMEs’ confidence.

For Industry Sub-Indices, though both manufacturing and import/export trade and wholesale industries hold a negative outlook, their business tracks differ. The brightening Manufacturing Industry Sub-Index has risen for three consecutive quarters and reached a new high of 49.0, while the Import/export Trade and Wholesale Industry Sub-Index drops slightly by 1.8 points to 46.8. Retailers remain optimistic despite a slight decrease in the Retail Industry Sub-Index (51.5) compared to last quarter.

Mr Leo Lam, Director (Business Innovation) of HKPC, said, “Hikes in orders have pushed up the Sales Amount Sub-Index of the manufacturing industry for two successive quarters, reaching above 50 for the first time. With labour shortages, however, recruitment and control of salary expenses will become manufacturers’ major challenges. Behind the slight drop in Import/export Trade and Wholesale Industry Sub-Index is the pessimism over profit margin. A rising RMB in recent years has eaten into the net income from trade with China, which cannot be offset by growth in other markets. The Retail Industry Sub-Index remains above 50 but a shrinking profit margin is also envisaged as RMB appreciation continues to drive up product costs.”

The survey also notes that 33% of the surveyed SMEs considered the currency market volatile in the past three months, yet only 15% of those SMEs took risk-hedging measures. Mr Jammy Chen, General Manager, SME Banking of Standard Chartered Hong Kong (Hong Kong) Limited, said, “It was found that more than 70% of the SMEs interviewed did not undertake any risk management for currency fluctuation. It shows that SMEs are either not alert to the potential risks caused by currencies volatility, or they lack knowledge on hedging products.”

Mr Chen further commented, “This could possibly explain why the import/export trade industry is pessimistic on profit margin in the survey.  In fact, the Japanese yen and Euro have been quite volatile in the first quarter this year. When the currencies are depreciating in major export markets such as Japan and Europe, and at the same time SMEs are paying with the rising RMB in their sourcing market, it is inevitable that their profit margin will decrease. SMEs should consider using appropriate hedging products to minimize the impact to profit margin caused by fluctuating currencies.”

In addition, less than 10% of the SMEs surveyed said they would need to raise workers’ pay in order to comply with the new statutory minimum wage which will come into effect on 1 May. While the impact on the hotel and catering industry is the biggest, only 3 to 9% of the three major industries will feel the heat.

The survey also finds that the government’s latest round of demand-side management measures for properties would affect the investment strategies of 10% of SMEs. With a cooling property market, only 30% expect higher rent in the second quarter (compared to over 50% in the last quarter). This implies an easing of SMEs’ worries against rising rent. However, nearly 70% fear material costs to rise and become their major challenge in this quarter.

In this survey, HKPC has conducted telephone interviews with 939 SMEs in eight industry sectors during March 2013. To download a report of the “Standard Chartered Hong Kong SME Leading Business Index”, please visit the website: www.smeone.org. Results of the next survey will be released in July 2013.

For more details about the Index, please contact HKPC’s Gary Cheng at tel. (852) 2788 6178 or email: garyc@hkpc.org. For other media enquiries, please contact Felix Chan at tel. (852) 2788 5036 or email: felixchan@hkpc.org.

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Mr Jonathan Ho
General Manager
Corporate Communications
Tel: (852) 2788 6390
Fax: (852) 2788 5056
Email: jonathanho@hkpc.org
Website: www.hkpc.org


10 April 2013

(From left to right): Mr Gary Cheng, Senior Consultant of HKPC; Mr Leo Lam, Director (Business Innovation) of HKPC; and Mr Jammy Chen, General Manager, SME Banking of Standard Chartered (Hong Kong) Limited, announce the survey findings of the “Standard Chartered Hong Kong SME Leading Business Index” for the second quarter of 2013