Only 10% of SMEs expect economy to improve in 2017

And their business prospects remain pessimistic too.

SME sentiment in Hong Kong remained weak entering 2017. The Standard Chartered Hong Kong SME Leading Business Index (SME Index), released jointly by

Standard Chartered Bank and the Hong Kong Productivity Council, fell to 41.9 in Q1-2017 from 42.5 in Q4-2016 (50 = neutral).

This was the first drop after two consecutive quarters of improvement from the record-low 40.4 reached in Q2-2016.

Here's more from Standard Chartered Bank's report:

The ‘sales’ and ‘profit margin’ sub-indices gave back their Q4 gains and more, reflecting a still-challenging business backdrop; all three major sector sub-indices (‘manufacturing’, ‘import/export/wholesale’, and ‘retail’) were simultaneously below 40 for only the second time on record (the other time being Q3-2016).

This suggests that SME sentiment was not ready for a sustained recovery, even when the ‘hiring’ subindex – which is more reflective of long-term confidence – rebounded to a six-quarter high of 52.6, and ‘investment’ remained steady (albeit at modest levels).

20% of respondents said Trump’s election as US president had weakened their business confidence. Among them, most worried about possible changes to US trade policy (57%), followed by intensifying FX volatility (23%) and an uncertain rate-hiking outlook.

We queried our respondents on their outlook for the Hong Kong economy and their own businesses.

Only 10% expected the economy to improve in 2017; the remaining majority was equally split between expecting deterioration and a status quo.

In terms of business performance, 21% anticipated expansion, by an average 10%. This contrasts with 29% of respondents expecting contraction, by an average 11%.