Retailers no longer main source of pessimism

Based on a bank's SME sentiment tracker.

It has been noted that retailers are no longer the main source of pessimism, as pessimism shifts from retail to external sectors.

According to a research note from Standard Chartered, externally oriented sectors like manufacturing and import/export/wholesale trade dipped to new lows of 41.1 and 41.6, respectively.

These findings are based on the Standard Chartered Hong Kong SME Leading Business Index (SME Index), released jointly by Standard Chartered Bank and the Hong Kong Productivity Council. The index noted that sentiment among SMEs in Hong Kong has deteriorated to a record low in Q1-2016, falling to 42.8 in Q1-2016 from 44.4 in Q4-2015 (50 being neutral).

Much of the decline was in ‘sales’, ‘profit margin’ and ‘global economic outlook'. This persistent downtrend makes Standard Charted cautious in calling a floor in external demand, even with a modest improvement in Hong Kong’s monthly export growth to - 1.1% in December from the low of -6.1% y/y in August.

Here's more from Standard Chartered:

The deterioration in external-sector sentiment contrasts with the rebound in the retail sub-index, which saw its fair share of headwinds stemming from slowing mainland visitors.

Given that the Lunar New Year holidays fall in Q1, seasonality probably played a part retailers’ relative resilience, offsetting the drag from its own weak ‘global economic outlook’ component.

The survey was conducted in December, when the market was reeling from bouts of Renminbi and Chinese stock-market volatility in Q3-2015. Recent data and market developments have not dispelled doubts about Beijing’s ability to stabilise its markets and economy, hence the external sector’s inability to turn around yet.

Given the further round of China-centric market volatility in the early weeks of January, SME sentiment may have deteriorated even more than suggested by the headline readings entering 2016.