HKTDC Export Index 1Q21: Improved Exporter Sentiment in Expectation of Economic Recovery in the Year Ahead

The HKTDC Export Index rose by 2.8 points to 39.0 in 1Q21, its fourth consecutive quarterly increase and an indication that exporter sentiment is continuing to recover. Despite this increase, however, there clearly remains considerable uncertainty with the overall figure still below the watershed level of 50.

• Exporter confidence further improved across all the major industry sectors, with toys (44.7), machinery (42.9) and jewellery (42.2) all outperforming the overall average.

• Exporters, however, remained cautious with regard to the short-term prospects of many of Hong Kong’s major markets. At 46.1, the US was the only market to inspire rising confidence.

• In line with this recovering sentiment, the Trade Value Index was up by 9.8 points (46.3) and the Employment Index was up by 1.7 points (43.2). Procurement sentiment, however, remained subdued, with its associated index down by 1.1 points to 33.6.

• With regard to Covid-19, 78.2% of exporters indicated they had been adversely affected by the outbreak over the past three months, with a reduction in order sizes (53.9%) cited as the most common downside.

• In terms of future focus, 45.7% of exporters said they were prioritising moves to ‘develop other product categories’, while 45.4% of exporters indicated they were looking to develop their online sales channels.

• Overall, proprietary websites / applications / social commerce (at 77.3%) and third-party e-commerce platforms (64.9%) were the most popular online sales channels. In terms of the biggest challenge to developing online sales, 56.7% of respondents singled out intense e-commerce competition.

• Among those that indicated ‘providing different types of value-added services’ as part of their business strategy, product design and development (67.9%) was the most popular option.

• Overall, the pandemic remains the major concern for Hong Kong exporters (46% of all respondents), followed by weakening global demand (28.4%).

With a number of Covid-19 vaccines now being successfully rolled out in many countries, hopes of a further recovery are high among exporters. Accordingly, for 1Q21, the HKTDC Export Index recorded an increase of 2.8 points, rising to 39.0 – its fourth consecutive quarterly increase. The overall index, however, remained in contractionary territory, indicating that Hong Kong exporters are still cautious with regard to the near-term outlook.

Increased confidence was evident across all the major industries – at 44.7, toys was the most promising sector, followed by machinery (42.9). It was jewellery, however, that manifested the strongest rebound, rising by 9.2 points to 42.2, while electronics stood at 39.0, and timepieces (36.5) and clothing (36.1) both stayed below the overall average.

Despite the uptick, it’s fair to say that Hong Kong exporters remained largely cautious about the near‑term prospects in most markets. Indeed, a more optimistic sentiment was only evidenced in the US, with the country edging up by 1.7 points to 46.1. This aside, the Asian region continued to be viewed as having the most promising prospects, with mainland China staying at 48.0, followed by Japan (47.3) and the ASEAN bloc (45.2). By contrast, the EU (42.9) was again rated as the least promising market.

With regard to the prospects of offshore trade (i.e. shipments not passing through Hong Kong, but handled by Hong Kong businesses), exporters were a little more downbeat, a sentiment that saw the decline to 31.1 from 36.0 in the previous quarter.

In the case of the Trade Value Index, this rose by 9.8 points to 46.3, suggesting that the downward pressure on unit prices may ease further over the next few months. For its part, electronics (at 47.5, up by 10.6 points) was the most highly rated sector in terms of unit prices, followed by toys (at 44.7, up by 7.4 points). Meanwhile, jewellery (44.6) reported the largest uptick (11.1 points). Despite staying below the overall average, an increase in readings was also recorded for machinery (up by 0.4 points to 41.4), timepieces (up by 9.0 points to 38.5) and clothing (up by 4.2 points to 35.1), indicating the possibility of higher unit prices in all sectors in the coming months.

Less positively, the Procurement Index experienced a slight decline in exporter sentiment, with its final figure falling by 1.0 points to 33.6. Within this, electronics (34.7) was the most positive sector, followed closely by toys (31.0). Clothing, meanwhile recorded the biggest drop (down 8.4 points to 23.3), followed by timepieces (down 6.1 points to 27.9), jewellery (down 2.7 points to 27.5) and machinery (down 4.4 points to 26.5), suggesting that procurement activities in these sectors are likely to decline.

In line with the generally improving sentiment, the Employment Index saw a further increase of 1.7 points, rising to 43.2 in 1Q21. Overall, toys enjoyed the biggest rise (up 6.4 points to 44.4), which saw the sector, together with electronics (43.5), stay above the average. Machinery, for its part, remained unchanged at 42.6. Hiring confidence in the clothing (41.6), timepieces (39.4) and jewellery (37.3) sectors, however, remained relatively downbeat, highlighting the possibility of redundancies in the near-term.

Unsurprisingly, Covid-19 has continued to be seen as the major challenge for exporters over the past few months, with a majority of respondents (78.2%) maintaining that their businesses had been negatively affected. As an indication of a slight return of confidence, however, only 33.1% indicated they held a “very negative” view, a considerable decrease from the 56.7% expressing the same sentiment in 4Q20. The number of respondents with a ‘slightly negative’ view increased (by 20.5 percentage points), while the proportion of unaffected respondents was up by 2.1 percentage points. Moreover, 1.4% of respondents described the impact as ‘slightly positive’ or even ‘very positive’.

Among those that had been affected, reductions in order sizes (53.9%) and difficulties in contacting overseas buyers / suppliers (27.5%) continued to be the major problems. Some 20.7% also reported disruption to logistics and distribution, while 17.4% had incurred order cancellations.

In order to weather any Covid-19-related recession, a large number of exporters (45.7%) indicated they had plans in place to develop other product categories throughout the course of 2021. A similar number of respondents (45.4%), meanwhile, maintained they planned to further develop their online sales channels. Other related business strategies here included diversifying sales to mainland China (36.5%) and a number of overseas markets (32.8%). In terms of market destinations, the ASEAN bloc and Europe (both 23.7%) were the most popular targets for market diversification.

Among those who have already developed an online sales offer, proprietary websites / applications / social commerce (77.3%) and third-party e-commerce platforms (64.9%) were the most popular channels. In addition, a significant number of respondents also indicated they had made use of online sourcing platforms (36.1%) or online exhibitions (19.1%).

In terms of the difficulties encountered when developing online sales, intense online competition (56.7%) was the primary concern. In addition, 52.6% of respondents reported difficulties in implementing a digital marketing campaign that was truly effective. Other commonly identified issues were uneconomically small order sizes (37.6%) and the difficulties of maintaining long-term buyer relationships on a virtual basis (32.0%).

As a means of remaining competitive, many Hong Kong exporters currently offer a variety of value-added services to buyers / suppliers. The most commonly provided, at 67.9%, is product design and development. This is followed by trade documentation / arrangement of logistics and assistance in obtaining quality certification / product testing reports, with both offered by some 56.6% of respondents.

Looking ahead, Covid-19 (46.0%) and weakening global demand (28.4%) continue to be seen as the two most pressing concerns on the part of Hong Kong exporters. In addition, 10.3% are wary of a likely downturn on account of the prolonged China-US trade tensions.

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 pessimistic outlook.