HKTDC Export Index 2Q22: First Rally in Exporter Confidence for 12 Months

• In the second quarter of 2022 (2Q22), the HKTDC rose to 30.9, a 6.2-point improvement from the previous quarter and the first rise in a year.

• Across all of the major sectors, exporters reported higher confidence compared to the previous quarter. The toy sector had the highest sub-index at 38.7, followed by machinery at 37.7. The timepieces sector showed the greatest improvement, standing at 34.6, a 14.9-point increase from the previous quarter.

• Export prices are also set to continue rising, with the Trade Value Index standing at 51.7, remaining in expansionary territory despite a slight decrease from the 52.8 recorded in the previous quarter.

• In terms of markets, Asia continues to provide the most promising outlook. Overall, Japan continues to be the best performer at 47.6, followed by ASEAN (43.3) and mainland China (43.1).

• Significantly, the impact of the pandemic appears to be receding, with only 79.1% of respondents indicating that their business had been negatively affected over the past three months, compared to 93.1% in the previous quarter. Among the key concerns still being cited, however, were rising transportation costs (72.6%), shutdowns and delays due to lockdowns in mainland China (68.7%), and disruptions to logistics / distribution arrangements (65.2%).

• Over the past three months, the Russia-Ukraine conflict, higher US interest rates and a depreciating renminbi have yet to impact business, with the majority of respondents (57-71%) reporting no negative consequences to date. 

• Looking ahead, concern over the pandemic is expected to reduce still further. In fact, only about 35.8% of respondents cited it as their top concern for the coming months, well down from the 53.5% recorded for 1Q22. 

Exporters in all major sectors demonstrated improved sentiment compared to the previous quarter. The toy sector continued to have the highest sub-index at 38.7 (a 5.2-point increase from 1Q22), followed by machinery at 37.7 (a 12.7-point increase). The timepiece industry saw the greatest increase (14.9 points) to 34.6. Slightly behind, but still showing signs of improvement, were clothing at 33.4 (a 5.4-point increase) and electronics at 30.4 (a 5.9-point increase).

Similar improvements were seen in the sub-indices representing the major export markets. In 2Q22, Asia continued to be seen as the likely best performer, with Japan having the highest sub-index at 47.6, followed by ASEAN at 43.3. Mainland China recorded a 1.0-point increase to 43.1 amid strong efforts to contain its recent coronavirus outbreaks. The EU had the biggest increase (2.8 points) to 42.3 and the US at 41.2 (a 2.1-point increase) also saw improvement.

Offshore trade (i.e. shipments not passing through Hong Kong but handled by the city’s businesses) also improved significantly as the rose by 8.0 points from 15.1 in 1Q22 to 23.1 in 2Q22.

The Trade Value Index remained in expansionary range at 51.7 in 2Q22, despite an overall 1.1-point fall quarter-on-quarter. This indicates that unit prices of exports are likely to continue rising in the near future, albeit at a slower pace in general than in recent quarters. Compared to 1Q22, more sectors are expected to raise prices. Jewellery (a 17.1-point increase to 54.4) and timepieces (a 9.2-point increase to 51.0) returned to the expansionary zone, while toys (53.2) and electronics (51.8) both maintained a sub-index above 50.

The Procurement Index showed an across-the-board improvement, gaining 4.7-points to reach 25.0 in 2Q22, although, as the index is still far below 50, procurement activities are expected to remain subdued in the near future. Timepieces (up by 9.6 points), toys (up by 7.7 points) and machinery (up by 7.4 points) saw more significant improvements in 2Q22, while electronics (up by 4.6 points), clothing (up by 3.4 points) and jewellery (up by 2.9 points) also made progress.

The Employment Index also saw a 4.9-point increase to 45.3, with all sectors showing improvements, suggesting that recruitment activities by Hong Kong exporters are stabilising. The clothing industry led in the sub-index at 46.5, followed by electronics (45.4), jewellery (45.1), machinery (43.2), toys (43.0) and timepieces (42.3).

Although Covid-19 continues to be a major concern for business activity, fewer respondents reported a negative impact from the pandemic than the previous quarter. In 2Q22, 79.1% of exporters indicated that their business had been negatively affected by the pandemic, down from 93.1% in 1Q22. Of these respondents, 35.2% said the pandemic had affected their business very negatively in 2Q22, compared to 44.7% in 1Q22. More than 20% of respondents reported no negative impacts from Covid-19, compared to 6.9% in 1Q22.

Of those negatively affected by Covid-19, most respondents cited increased transportation costs (72.6%), shutdowns and delays due to lockdowns in mainland China (68.7%), and disruptions to logistics and distribution arrangements (65.2%) as the main issues in 2Q22. On a more positive note, fewer respondents reported issues with reduced orders, order cancellations, shortages of raw materials, parts and components, rising production costs or communication issues with buyers or suppliers, compared to the previous quarter.

While the global economic backdrop has become more challenging, Hong Kong exporters reported limited impacts on their business activities thus far.

In the HKTDC Survey, 69.1% of respondents reported no impact from the Russia-Ukraine conflict on their business in 2Q22. Overall, negative impacts mainly arose from supply chain disruptions, with increased transportation costs (20.1%), shortages in raw materials, parts and components (13.2%), and disruptions to logistics or distribution arrangements (12.8%) being the most common problems.

As the major economies tighten their monetary policies to combat inflationary pressures, an impact has yet to be observed on Hong Kong’s exporters. Regarding recent interest rate hikes in the US, 70.7% of respondents indicated there had been no impact on their business in 2Q22. Some exporters, however, did report negative impacts, including reduced buyer orders (13.8%), increased operating costs (21.9%) and increased financing costs (9.4%).

The recent renminbi depreciation against the US dollar, closely related to the monetary policy divergence between China and the US, appears to have had a limited impact on Hong Kong exporters, with 56.9% of respondents saying that they were unaffected by the change in 2Q22. Noticeable impacts, however, were seen on operating costs, with more respondents indicating a decrease (22.0%) in operating costs than an increase (14.6%).

Covid-19 continues to be the main concern for the rest of the year, with 35.8% of respondents identifying lockdowns and the overall persistence of the pandemic as the biggest threat to their export performance. The drop from 53.5% in the previous quarter, however, shows that exporters are shifting their focus to other market risks as the global impact of Covid-19 subsides. Key issues that received increasing attention include the slowdown in economic growth (14.8%), border closures (12.0%) and disruptions to logistics and distribution (7.3%). Few respondents considered interest rate hikes (6.5%) or geopolitical risks (such as the Russia-Ukraine conflict) (4.3%) to be the biggest threat.

Diversification continued to be the favoured strategy among Hong Kong exporters in 2Q22, as businesses look to spread risks and capitalise on new market opportunities. The most common strategies that respondents intended to adopt were developing new product categories (41.2%) and diversifying sales into additional overseas markets (35.6%). Among respondents planning for overseas market development, ASEAN (35.7%) was the most popular destination.

The HKTDC is designed to gauge the prospects of the near-term export performance of Hong Kong traders. The business confidence survey is conducted on a quarterly basis, with 500 participating Hong Kong traders from six major industry sectors interviewed. Any Index reading above 50 indicates an upward trend and an optimistic outlook, while any Index reading below 50 indicates a downward trend and a pessimistic outlook.