Hong Kong SMEs to invest in the next 6 months

1 in 10 SMEs will expand their workforce as Hong Kong businesses show signs of recovery.

HSBC’s Small Business Confidence Monitor revealed the vast majority of small and medium-sized enterprises (SMEs) in Hong Kong plan to increase (29%) their capital expenditure (CAPEX) or maintain (53%) their current CAPEX levels in the next six months. SMEs across the globe showed increasing confidence, with Hong Kong and Asia demonstrating steady signs of recovery by maintaining their levels of confidence in the first half of 2010, according to an HSBC report.

Shaun Wallis, Global Head of Business Management, Commercial Banking, said: “Our research indicates confidence levels in the emerging markets are stable and are back to pre-financial crisis levels. Whilst it may be tempting to argue that emerging nations will be affected by the weakening Western economy, we think that there are three important channels that suggest Asia will continue to grow. The first is related to trade. Emerging nations are now trading more with each other and are therefore less exposed to the Western economy. The second is the low return on Western assets which will encourage investors to put more money into the emerging world. And finally, driven by high commodity prices, there is major redistribution of income from Western markets into emerging nations.”

The semi-annual HSBC Small Business Confidence Monitor gauges the outlook of SMEs on local economic growth, capital investment plans and recruitment. The latest wave is the largest international survey of its kind covering over 6,300 SMEs across 21 markets in Asia, the Middle East, Europe, North America and Latin America.

Confidence across Hong Kong and Asia
For the first time since the financial crisis, all Asian markets hold a positive outlook in terms of local economic growth as well as in their recruitment and CAPEX plans. Both Asia and Hong Kong have sustained their index levels at 121 (vs 122 in 4Q09) and 105 respectively (vs 108 in 4Q09). Vietnam is the most confident country in Asia with an index of 164, followed by Singapore (136), mainland China (123) and India (121).

Taiwan climbed 6 points from 97 to 103, placing it back in positive territory for the first time since the financial crisis.

Global levels of confidence
Confidence increased across the globe from 111 to 118, with emerging markets (122) being seven points higher than developed markets (115). Compared to the previous results in the fourth quarter of 2009, the developed markets increased from 106 to 115 (9 points), showing signs of increased positivity within the developed markets.

Most markets across the globe held a positive outlook, with Turkey leading at 138, followed by the Middle East (132), Greater China (121), India (121), South-East Asia (119), North America (119), Latin America (118) and Europe (99). Compared to the previous results in the fourth quarter of 2009, Turkey showed the biggest jump in confidence, up 21 points, followed by North America (up 12 points) and the Middle East (up 7 points).

Hong Kong SMEs and RMB Trade
According to the survey, almost a third (29%) of SMEs in Hong Kong currently hold a RMB trade account. Within the next 12 months, the number of SMEs holding a RMB trade account in Hong Kong is expected to increase to 48 per cent. The research also revealed 44 per cent of SMEs in Hong Kong are currently international, well above the global average of 36 per cent. Despite global economic uncertainty, this segment is expected to grow to 48 per cent over the next two years.

Outlook on local economic growth
In terms of economic growth, the vast majority of Hong Kong SMEs are holding a stable outlook on the local economy, with 18 per cent expecting the pace of economic growth to increase and 64 per cent expecting it to maintain its current momentum in the next six months. Only 18 per cent expect growth to slow down.

Over a third (34%) of SMEs globally and 35 per cent in Asia expect an increase in the pace of economic growth. Half (50%) of SMEs across the globe and 51 per cent in Asia expect this growth to maintain the same pace. In Turkey, 56 per cent of SMEs expect the pace of growth to increase, as do 49 per cent in the Middle East, followed by South-East Asia (47%), mainland China (31%), North America (30%), Latin America (28%) and India (27%). In Western Europe, only 10 per cent expect the pace of economic growth to increase.

Outlook on capital expenditure
The majority (53%) of Hong Kong SMEs are planning to maintain their current levels of investments, with 29 per cent stating they will increase their capital expenditure plans.

Forty-one per cent globally and 39 per cent in Asia are planning to increase capital expenditure, led by Turkey (52%), Middle East (50%), South-East Asia (46%), Latin America (43%) and mainland China (42%).

Outlook on recruitment plans
Ninety-nine per cent of Hong Kong SMEs will either expand their workforce (10%) or maintain their current staffing levels (89%) in the next six months. Only one per cent are planning to cut staff. Recruitment plans are positive for SMEs across all markets in the survey, with 26 per cent globally and 24 per cent across Asia planning to recruit more staff in the next 6 months. Notable hiring increases are planned by 41 per cent of SMEs in Turkey, 35 per cent in the Middle East and 31 per cent in South-East Asia.

Mr Wallis added: “While the emerging markets remain the most confident, it is interesting to note the significant increase in confidence levels amongst the developed markets. It is encouraging to see that despite global economic uncertainty, small businesses around the world remain confident and continue to invest and recruit. Forming a vital part of the local economy, the collective impact of small businesses is significant. With our international footprint and local expertise, HSBC continues to provide small businesses with an ideal platform to grow and look for new business opportunities.”