3 reasons why retail sales growth in Hong Kong crashed much more than China's

Blame it on lagging tourism.

According to DBS, retail sales values and volumes are projected to grow 6.0% and 5.6% respectively in October, versus 5.0% YoY and 4.9% in September. On a 3mma basis, retail sales have been falling since April.

Tourist retail sales performed particularly poorly. While the macroeconomic slowdown in China is expected to have made some impact, we suspect other factors may be at work.

Here's more from DBS:

That’s because retail sales growth in Hong Kong (tourist spending proxy) has dropped much more than China’s retail sales growth.

One reason could be an increasing proportion of less affluent second/third tier tourists visiting Hong Kong.

Secondly, the frugality campaign on the mainland might have deterred luxury consumption. Thirdly, the shift in tourist consumption from luxury goods towards daily necessities and personal care products has made it difficult to distinguish between tourist spending and locals’ spending.

In other words, “traditional” tourist categories such as watches, jewellery and photographic equipment may not fully reflect (or even underestimate) actual tourist spending.

Meanwhile, locals’ retail spending only grew 7.1% in 3Q13 versus 9.9% in 2Q. However, we do not expect locals’ retail spending growth to fall further as the present situation is one of falling consumer sentiment, but not one of falling spending power. Disposable incomes are still rising and the labor market remains very tight.

For the full year, retail sales values are expected to grow about 10%, same as that in 2012.