HKTDC Export Index Holds Steady in Q3

HKTDC Export Index

HONG KONG – The Hong Kong Trade Development Council (HKTDC)’s Export Index is holding steady in the third quarter of this year despite the current uncertain global economic environment, the HKTDC announced.

Hong Kong’s exports are holding steady based on the latest HKTDC Export Index, which is edging up slightly to 38.8 from 37.2 in the previous quarter. The index measures exporter confidence, with a reading below 50 indicating pessimistic sentiment.

The HKTDC Export Index result follows last week’s G20 meeting in Hangzhou, China, where the leaders of major economies were unable to find concrete solutions to persistent sluggish global growth.

“While exporter confidence is clearly stabilising, they remain pessimistic with regard to their likely export performance over the short-term,” HKTDC Director of Research Nicholas Kwan said at a press conference.

Electronics, jewellery and timepiece markets rebound strongly

Among the best performing industries in Q3 2016, timepieces and jewellery showed strong rebounds. For timepieces, the index bounced to 43, up from the previous reading of 33.8 while jewellery rose to 41.3, compared to 21.6 in the previous quarter.

Timepieces and jewellery aside, electronics edged up to 39.3 from the previous reading of 37.4.

“These industries saw better procurement sentiment on a quarter-to-quarter basis,” Kwan explained.

On the downside, the indices for clothing and machinery fell slightly to 32.3 and 39.4, respectively while toys exporters turned rather negative in 3Q16, with the respective index retreating to 28.9, after touching its recent high at 41.5 in 2Q16.

Export confidence remains unchanged for major markets

Export confidence with regard to the major markets has remained largely unchanged overall. Japan continued to register the highest reading of 46.9, although this is slightly lower than the previous quarter (47.4).

Upturns were seen in relation to the United States, which recorded 46.7 (2Q16, 45.8) and the Chinese mainland index reading of 46.1 (2Q16, 45.8). On the other hand, the index for the European Union slid to 42.4, down from 44.3 in the previous quarter.

HKTDC Principal Economist (Global Research) Daniel Poon, added that the United Kingdom’s “Brexit” referendum vote on 23 June 2016 to leave the EU had so far had little impact on Hong Kong exporters.

“Nearly 83 per cent said they had not seen any impact on their sales performance so far, while almost all of the remaining respondents (17%) said they had felt slightly negative repercussions,” he said.

Among those affected, more than half (55%) planned to respond, with the top three strategies being developing new markets, company downsizing and trading down, Poon added.

Iran: a potential market for Hong Kong exporters and investors

Following the removal of UN sanctions in January 2016, Iran is on course to become one of the most attractive economies in the Middle East and North Africa (MENA) region.

The re-opening of the region’s second-largest economy has been the subject of considerable interest from foreign companies seeking to tap business opportunities in this upper-middle-income country.

In light of these new market opportunities, HKTDC Research undertook a field trip to Iran to assess the suitability of the country as an export destination for Hong Kong consumer products and services and to review the country’s business environment and practices in order to get an informed understanding of the local market conditions for traders.

Iran recorded estimated nominal GDP of US$387.6 billion in 2015, second behind only Saudi Arabia in the MENA region. For many years, Iran’s economy has been stunted by a series of US, UN and EU sanctions, including a trade embargo, the freezing of overseas Iranian assets, and the prohibition of financial and bank dealings with Iran.

The Government and Central Bank of Iran are eager for more business activity abroad, now that UN sanctions have been lifted. In line with Vision 2025, the Iranian government identifies a number of core industries that the country will focus on developing.

These include petrochemical products, metals and minerals, energy, food, pharmaceuticals, industrial machinery and equipment, home appliances, textiles and apparel, and transport.

“Several strategic growth objectives have been outlined in relation to this long-term development plan including productivity enhancement through the adoption of advanced technologies and a focus on innovation-driven manufacturing,” said Dickson Ho, HKTDC Principal Economist (Asian and Emerging Markets).

Ho also noted that Iran has maintained a reasonably large domestic manufacturing industry despite many years of international sanctions.

“This means Iran is quite different from many other emerging markets and FDI investors in Iran can have the added option of upgrading existing facilities on top of building new infrastructure, thus diminishing initial capital requirements. Furthermore, the government is committed to providing a host of incentives to foreign investors, many of which are sector-specific,” Ho said.

Iran has a population of nearly 80 million and more than 60 per cent of its citizens are aged 30 or under, making Iran one of the largest consumer markets in MENA with strong growth potential for imported goods.

Throughout the sanctions period, Iran’s large middle class maintained a strong preference for foreign products, which is expected to further strengthen in the post-UN sanctions era, as trade and banking normalisation eases related business activity.

“With UN sanctions now lifted, Iran’s retail landscape is likely to experience rapid changes in response to the pent-up demand for authentic, high-quality imported goods, including electronics, telecom products and parts, watches and clocks, jewellery, clothing and other consumer products,” said Ho, who also warned of potential risks to Hong Kong exporters.

Ho said companies should carefully consider their next steps and be mindful of the remaining sanctions on Iran.

“This, combined with many legacy issues in Iran, will continue to present some uncertainty in the short-term, and hurdles for overseas companies to overcome,” he said.

Fashion forward middle class a driver for China’s watch market

The Chinese mainland’s growing middle class consumer group is increasingly seeking tasteful living and products that suit their individual style. As such, they are more willing to spend on personal items like mid- to high-end watches, according to a recent survey conducted by HKTDC Research.

“Fashion watches and smart watches are the most popular type of watches on the mainland. The survey found that, most mainland consumers currently own fashion watches (76%) and smart watches (55%). Yet, 30 per cent of respondents indicated that they would buy fashion watches the next time, followed by smart watches (27%),” said Alice Tsang, HKTDC Economist (Greater China Research Team).

In order to assess the latest developments of the watch market on the mainland, HKTDC Research conducted a survey of watch consumers from February to May 2016 through a series of focus group discussions and an online questionnaire survey.

Among the several key insights gained from this survey, the results showed that, irrespective of gender, city of residence or household income, all respondents agree that the philosophy of “reward oneself/make oneself happy” is the top reason for people buying watches.

“It is important to note that watches are not a solitary item in a Chinese consumers’ wardrobe but that the average mainland consumer has three watches,” Tsang said.

The survey also found that for both male and female respondents, brand and style/design are the most important considerations.

“In terms of shopping preferences, physical stores are currently preferred but companies should not ignore the prospect of online marketing and selling,” Tsang added. –