Standard Chartered SME Index for 2014 Q2 at 50.8 SMEs Cautiously Optimistic amid Profit Squeeze

 
The latest “Standard Chartered Hong Kong SME Leading Business Index” (Standard Chartered SME Index) reported a drop of 2.6 points to 50.8 after the Overall Index reached its record high in the last quarter. Announcing the findings for the second quarter of 2014 today (15 April 2014), the Hong Kong Productivity Council (HKPC) noted that the Index still stays above the 50 no-change mark, reflecting a cautiously optimistic business outlook. However, many SMEs have lowered their expectation on profit margin with worries about increasing financing cost.
 
Sponsored by Standard Chartered Bank (Hong Kong) Limited (Standard Chartered Hong Kong), the quarterly survey features an Overall Index comprising five Sub-Indices. In this quarter, the Sub-Indices for “Staff Number” (52.4), “Sales Amount” (52.0) and “Profit Margin” (44.2) have dropped 2.2, 4.0 and 5.7 points respectively. The Sub-Indices for “Investments” and “Global Economic Growth” are similar to previous readings.
 
For sectorial findings, all three major Industry Sub-indices are still above the 50 threshold. Import, Export & Wholesale industry Sub-Index rises marginally by 0.6 points to 51.5. Notably, the industry becomes more optimistic towards “Global Economic Growth” (jumps 6.1 points to 46.5) as the EU and US economies gradually improve. Both Manufacturing and Retail industries remain confident in the business environment despite a drop in relevant sub-indices. Manufacturing industry Sub-Index drops 6.6 points to 51.8 with worsening outlook on “Investments”, “Profit Margin” and “Global Economic Growth”, yet the readings show improvement compared with the same period last year. Meanwhile, the Retail industry Sub-Index drops 2.2 points to 51.0, in anticipation of falling “Sales Amount” and “Profit Margin”. 
 
Mr Gordon Lo, General Manager (IT and Business Management) of HKPC, said, “It is not surprising that SME retailers reduce their sales and profit margin projection after the New Year peak season. What calls for attention is the substantial reduction as compared with the same period last year. It is also the first time in the past 1.5 years that the ‘Sales Amount’ Sub-Index in this sector drops below 50. Many respondents urge the Government to keep up the reputation of Hong Kong as a ‘shopping paradise’ to sustain growth. Apart from providing value-for-money quality products and services, retailers are advised to adopt innovative technologies, such as automation, Point of Sale system, and cloud computing to enhance operation efficiency and provide value-adding services for customers.”
 
Regarding operating costs, although SMEs feel relieved from the pressure of increasing materials cost and employee salary expense in this quarter, respondents from almost all industries show worries about increasing financing cost.
 
“The market is anticipating an upward trend in interest rates, which translates to the concern by SMEs on the high cost of financing.  Companies can seek for advice from banks on how to manage interest risks; for example, they can set up interest rate swap agreement to manage exposure to fluctuations in interest rates; or to consider taking up a fixed interest installment loan and draw down the loan earlier to make the most of a lower interest rate,” said Jammy Chen, Head, Business Clients, Standard Chartered Hong Kong. 
 
Mr Kelvin Lau, Senior Economist of Standard Chartered Hong Kong, said, “China’s growth has been off to a slow start to the year, while the US economy has also been impacted by poor weather.  In this regard, the mild drop in the ‘Global Economic Growth’ could have been worse – the latest reading of 42.9 is still higher than Q4’s 38.6.  Stronger reading for the Import, Export & Wholesale sub-index is also encouraging, possibly reflecting that the recovery in the West remains on track. We continue to believe that 2014 will be a year of strong growth compared to 2013, and this will underpin the still positive sentiment across hiring, investment and sales of our respondents. Wage pressure continues to be a challenge, especially for manufacturers, as confirmed by our recent annual PRD wage survey.”
 
This survey also collected data on salary expenses in the Retail, and Accommodation & Food Service industries. The “Staff Number” Sub-index in the Retail industry has been staying above 50 since the launch of the Standard Chartered SME Index in 2012, indicating the sustained demands for labour. With the rapid development in both industries in recent years, over 85% of the respondents said that they have to offer much higher than the statutory minimum wage in order to fill up vacancies. 
 
In this survey, HKPC has conducted telephone interviews with 820 SMEs in eight industry sectors during March 2014. 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 2014.
 
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 Chloe Chau at tel. (852) 2788 6158 or email: chloechau@hkpc.org. 
 
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About “Standard Chartered Hong Kong SME Leading Business Index”
The “Standard Chartered Hong Kong SME Leading Business Index” is a forward-looking survey on local SMEs’ outlook on the overall business environment for the next quarter. For each quarterly survey, HKPC’s professional team interviews more than 800 local SMEs from the manufacturing, import/export trade and wholesale, retail, accommodation and catering services, information and communications, finance and insurance industry, professional services, and real estate industries. It covers SMEs’ outlook on their ‘sales amount’, ‘profit margin’, ‘investments’, ‘staff number’, and ‘global economic growth’ for the next quarter.
 
The Index is announced in January, April, July and October to provide a useful reference for the public and SMEs in making strategic decisions and resource allocation amid the changing business environment.
 
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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
 
15 April 2014
 
(From left to right): Mr Gary Cheng, Senior Consultant (IT and Business Management); Mr Gordon Lo, General Manager (IT and Business Management) of HKPC; and Mr Kelvin Lau, Senior Economist of Standard Chartered Hong Kong, announce the survey results of the
 
(From left to right): Mr Gary Cheng, Senior Consultant (IT and Business Management); Mr Gordon Lo, General Manager (IT and Business Management) of HKPC; and Mr Kelvin Lau, Senior Economist of Standard Chartered Hong Kong, announce the survey results of the "Standard Chartered Hong Kong SME Leading Business Index" for the second quarter of 2014.
 
 

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