HKTDC Export Index 4Q20: Exporter Sentiment Improves as Initial Covid-19 Shockwave Recedes

The HKTDC Export Index rose by 11.1 points to 36.2 in 4Q20, the third consecutive quarterly increase. This suggests that exporters are less pessimistic with regard to their likely export performance in the coming months. With the overall figure staying below the watershed mark of 50, this indicates considerable uncertainties remain with regard to the short-term export outlook.

• Overall, a broad improvement was evident across all the major industry sectors, with machinery (at 39.5) reporting the highest reading and jewellery enjoying the biggest rise (up 12.9 points to 33.0).

• In terms of the major markets, Mainland China (48.4), Japan (47.3) and ASEAN (47.2) continued to command the most positive short-term market outlook. Exporters, however, were less confident when it came to the growth potential of both the US (44.4) and the EU (44.0).

• In another sign of improving sentiment, all the subsidiary indexes exhibited an upward trend, with the Trade Value Index standing at 36.5 (up 4.5 points), the Procurement Index at 34.6 (up 9.3 points) and the Employment Index at 41.5 (up 1.7 points).

• With the Covid-19 pandemic showing no signs of abating, 81.3% of exporters indicated it had adversely affected them over the past three months, with reductions in order sizes (56.9%) cited as the most common downside.

• As a means of responding to the unique challenges arising from the pandemic, 27.6% of exporters indicated they have lowered their unit prices. In addition, 21.8% said they had downsized their businesses, with a similar proportion of respondents developing their online sales channels.

• Addressing another key issue, 62.9% of respondents believed that prolonged China-US trade tensions were likely to harm their export prospects.

• Overall, the pandemic remains the major concern for Hong Kong exporters (54.9%), followed by declining global demand (23.8%) and escalating China-US trade tensions (9.6%).

With confidence ebbing back after the initial trauma of the Covid-19 outbreak, the HKTDC Export Index is continuing its gradual climb. This saw a rise of 11.1 points to 36.2 in 4Q20 and marked the third consecutive quarter of improvement. Although this does suggest that peak exporter pessimism has passed, it is still likely that Hong Kong exporters will face considerable challenges over the near-term given that the overall index remained in contractionary territory.

In line with the improving sentiment, exporters across all the major sectors appear to have become notably more optimistic over the past three months. At 39.5, machinery remained the most promising sector, followed by electronics (36.4) and toys (35.9). The strongest rebound was recorded in the jewellery sector (up 12.9 points to 33.0), while clothing at 32.9 and timepieces at 33.5 were both up by 11.9 points.

Turning to the performance of the major markets, the Asian region continued to be seen as having the best prospects, with Mainland China (48.4) regarded as having the most positive short‑term market outlook, followed by Japan (at 47.3) and the ASEAN bloc (at 47.2). While exporter confidence in the US (44.4) and the EU (44.0) also rose, the latter continued to be viewed as the least promising market overall.

Exporters were also upbeat with regard to the prospects of offshore trade (i.e. shipments not passing through Hong Kong, but handled by Hong Kong businesses), with the Offshore Trade Index rising to 36.0 from 21.7 in 4Q20.

Although the Trade Value Index edged up by 4.5 points to 36.5 in 4Q20, it remained in contractionary territory. This suggests that unit prices will continue to face downward pressure over the next few months. For its part, machinery (at 41.0) was the most highly rated sector in terms of unit prices, while also reporting the largest uptick (7.7 points) overall. Toys (37.3) and electronics (36.9) also stayed above the overall average, while the readings for jewellery and clothing climbed to 33.5 and 30.9 respectively. The lowest reading was recorded for timepieces (29.5), indicating the possibility of lower unit prices in this sector in particular over the coming months.

The Procurement Index, too, saw a positive rise in exporter sentiment over the course of the most recent quarters, climbing by 9.3 points to 34.6 in 4Q20. Electronics (35.0) and timepieces (34.0) were the most positive sectors, followed closely by toys (33.8). While clothing recorded the biggest rise (up 15.4 points to 31.7), machinery (30.9) and jewellery (30.2) remained relatively subdued, suggesting that procurement in these two sectors may be set to decline.

The Employment Index edged up by 1.7 points to 41.5 in 4Q20 following its decline to a four-year low in the previous quarter. Overall, only the electronics sector (up 2.2 to 42.0) showed any increase, while clothing (38.1) and toys (38.0) remained unchanged. Less positively, hiring confidence declined in the machinery (down 2.5 points to 42.6), jewellery (down 2.4 points to 35.8) and timepieces (down 0.6 points to 35.0) sectors, highlighting the possibility of related redundancies in the coming months.

With the Covid-19 pandemic continuing to cause widespread uncertainty over the past few months, the majority (81.3%) of respondents reported the situation was negatively impacting their export business. This, however, was down by 9.8 points compared to the previous quarter indicating a very slight return of confidence. Overall, only 18.7% of respondents indicated their businesses remained unaffected by the pandemic.

Among those that had been affected, reductions in order sizes (56.9%) continued to be the key problem, while 22.3% of respondents reported orders being cancelled. Other major challenges included difficulties in contacting overseas buyers / suppliers (22.8%), buyers bargaining on prices (14.0%), disruption to logistics and distribution arrangements (12.8%) and the postponement of shipments (10.7%).

In order to mitigate the impact of the crisis, 27.6% of exporters indicated they had lowered their unit prices (up by 5.6 points on the previous quarter). At the same time, 21.8% reported they had downsized their businesses for the same reason, with a similar proportion maintaining they had looked to enhance their online sales operations. Other remedies included the implementation of a work-from-home policy (18.8%), the lowering of minimum order quantities (15.5%) and increased product diversification (13.8%).

Other than pandemic-related concerns, Hong Kong exporters also remained wary as to the likely impact of the ongoing China-US trade dispute. Overall, 62.9% of respondents believed the situation would prove harmful to their export business, a 5.5-points drop from the previous quarter. Conversely, 37.1% took a neutral view as to whether they would face any negative consequences as a result of the dispute.

In terms of the immediate future, the Covid-19 pandemic remains the key concern for the majority (54.9%) of Hong Kong exporters. In addition, 23.8% remain worried with regard to weakening global demand, while 9.6% see a likely downturn on account of the prolonged China-US trade tensions. Only 1.2% of respondents, however, indicated concerns over US moves to have all imports from Hong Kong labelled ‘Made in China’. This, however, may be down to the fact that the requirement is expected to affect less than 0.1% of Hong Kong's total exports.

The HKTDC Export Index 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 correspondingly pessimistic outlook.