Businesses in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) are pinning their hopes on Asian economies, particularly Mainland China and countries in the Association of Southeast Asian Nations (ASEAN), going forward, while the financial sector is seen as having the best prospects overall.
Standard Chartered and the Hong Kong Trade Development Council (HKTDC) on Monday released the “GBA Business Confidence Index” (GBAI) for the third quarter of 2022. The current performance for “business confidence” dropped two points to 41.3, weakening for a fifth consecutive quarter, reflecting a more challenging reality as both external (rising interest rates and recession risk) and domestic (COVID disruptions and a weak housing market) headwinds worsened in recent months.
Asian markets outperform
The survey found respondents had become wary regarding market outlook and had broad-based growth concerns. Irina Fan, Director of Research, HKTDC, said respondents remained relatively upbeat on Asian markets. The mainland saw the highest share of gross positive responses, followed by Hong Kong and Macao (main picture), as well as ASEAN.
“We expect the GBAI will rebound gradually when the pandemic subsides and business activities are able to fully return to normal. Yet, economic headwinds, lukewarm demand, fluctuating global markets and rising costs remain the key challenges ahead,” Ms Fan said.
The weaker current performance prompted corporates to turn more cautious on their outlook for the fourth quarter. The expectations index for business activity fell 2.6 points to 49.9 in the third quarter from 52.2 in the second quarter, below the 50-neutral mark for the first time in nine quarters, indicating there is little hope of a swift pick-up in momentum.
Hong Kong gains
Meanwhile, among the 11 cities of the GBA, Hong Kong (up 2.8 points to 42.5) and Guangzhou (up 0.9 point to 44.6) were the only two reporting improvements in their “current performance” sub-index. Hong Kong was the only city showing growth in the “expectations” sub-index (up 3 points to 46.3)
“With the recent relaxation of quarantine rules for inbound visitors, we expect Hong Kong to remain on a recovery path in the coming quarters,” said Kelvin Lau, Senior Economist, Greater China, Standard Chartered. “That said, a recovery is likely to be modest, given the intensifying external (looming recessions in the West and a slowing China) and domestic (higher interest rates and a weak housing market) drags.”
Financial services improve
Financial services was the only industry sector that saw improvements in both the “current performance” (up 7.9 points to 47.3), and “expectations” (up 9.1 points to 51.5) sub-indices. The sector probably benefited from recent policy easing, via the lowering of banks’ own borrowing costs or relaxation towards the real estate sector, which could help banks mitigate some of the related downside risks to asset quality and loan growth.
Tech companies saw the biggest plunge in the “current performance” and “expectations” sub-indices, falling 10.7 points to 39.6 and down 15.3 points to 46.0, respectively. “Slowing consumer demand, strong capacity growth and high inventories globally, coupled with lingering domestic concerns stemming from prior regulatory tightening, likely explained the sharp fall,” Mr Lau added.
COVID disruption lessens
The GBAI is the first forward-looking quarterly survey in the market that looks at the business sentiment and synergistic effects in cities and industries across the GBA. It is compiled based on a survey of more than 1,000 companies in the GBA covering the manufacturing and trading, retail and wholesale, financial services, professional services, and innovation and technology sectors. The index enables investors and businesses to better understand the current business climate, gauge future performance prospects and formulate their market strategies for the GBA.
About half (49%) of the respondents said they had been affected by the COVID-19 pandemic in recent months in terms of transportation and/or logistics disruption, but more than 90% said the mainland’s recent shortening of the quarantine period for inbound travellers would help improve business. Over 80% said the mainland’s real estate downturn would have limited or no impact on the overall economy.
Meanwhile, most respondents said the impact of a potential reduction in United States-mainland trade tariffs would be minimal, as any tax cuts were likely to be small in scale and scope.