Over half of SMEs say economic improvement is at least a year away

Sentiment dropped to another record low.

It has been noted that sentiment among small and medium-size enterprises (SMEs) in Hong Kong fell to another a record low for Q2-2016.

According to a research note from Standard Chartered, its Hong Kong SME Leading Business Index (SME Index), released jointly by Standard Chartered Bank and the Hong Kong Productivity Council, deteriorated to 40.4 in Q2-2016 from 42.8 in Q1-2016 (50 = neutral).

The five main sub-indices fell across the board, indicating widespread pessimism, following a shaky start to the year. The hiring sub-index fell below 50 for the first time, suggesting that prevailing uncertainties are eroding SMEs’ long-term confidence in their own business outlooks.

All but one industry sub-index came in worse, led by a 17% q/q drop in ‘import/export/wholesale’, indicating that external uncertainties remain key headwinds.

Here's more from Standard Chartered:

The silver lining is that China’s economy and the Renminbi have somewhat stabilised since March, and that expectations of a Fed rate hike have also been priced out – both are risk-positive near-term.

That said, SMEs in Hong Kong are likely to need more sustained data and market improvements before they start to feel better about their own business outlooks. We therefore think it is too early to claim that the SME Index has bottomed out.

The prevailing pessimism is not only deep-rooted but also appears a bit excessive, in our view. 64% of our respondents expect the current downturn to last at least another year.

And if the sluggish situation is indeed to persist, around 20% of our respondents may consider winding up within one year; 5% of these may even close down within the next three months. Another 34% say they could close business if the prevailing downturn lasts another one to two years.