Mainland China and Indonesia Leading in Trade Confidence, Finds Survey

Small and mid-market businesses (SMEs and MMEs) in mainland China and
Indonesia that engage in export and import activities are the most optimistic in their trade outlook for the next three months, according to the HSBC Trade Confidence Index.

The HSBC Trade Confidence Index covers a total of 12 markets – including key economies in the Asia-Pacific region, the United Arab Emirates (UAE), Brazil, the
UK and the US. Over 3,500 trade-oriented SMEs and MMEs were asked about their three-month outlook on: trade volume; buyer and supplier risks; the need for trade finance; access to trade finance; and the impact of foreign exchange on their businesses. The results were used to calculate an index ranging from 0 to 200, where 200 represents the highest confidence level, 0 represents the lowest and 100, neutral.

The index shows an overall positive outlook across emerging and developed economies, with respondents from mainland China (121 points), Indonesia (120) and the UAE (118) the most confident about trade activity and growth. Improved sentiment was most evident in Hong Kong, Singapore and Australia, where confidence scores rose by about 10% since the last survey, conducted in the second quarter of 2009.

Lawrence Webb, HSBC global head for trade and supply chain, said: “We are seeing signs of what could be the start of a global trade recovery: trade volumes have stabilised and are posting notable growth in certain markets. Our survey shows that globally, traders expect more orders and better access to credit and hold a stable outlook on buyer and seller risks. In Asia, huge government stimulus packages such as in mainland China are buoying sentiment leading to an increase in the cross-border trading of commodities, construction materials and equipment. Growing intra-Asia trade and stronger domestic consumption are also signs of economic recovery. However, while overall outlook is positive, it is too early to tell if the rebound is sustainable, until such time as we begin to see a marked recovery in the West as well.”

In summary, the HSBC Trade Confidence Index found a range of signs in support of a positive global trade outlook:

• The number of respondents expecting trade volumes to grow (44%) significantly outnumber those who expect a contraction (15%), on average 3:1.
• About one-third (32%) of respondents expect their need for trade finance to increase, especially in India (44%), southeast Asia (41%) and the UAE (37%).
• Most respondents expect good access to credit, with over half (59%) saying it will stay the same and around a third (31%) saying access will increase.
• At least four in 10 respondents expect banks to meet future trade finance needs, except in the UK, where 45% will rely on their own capital compared to 29% who will seek bank support.
• The majority of respondents expect buyer default risk (69%) and supplier non- delivery risk (75%) to remain stable, although a slightly greater number of respondents expect an increase in buyer risk (17%) than supplier risk (12%).

Webb said: “In a downturn, concerns relating to seller risk tend to be less pronounced than those related to buyers’ default risk. We continue to see exporters planning to use their banks’ trade finance solutions to manage the buyer risk, especially in India and the UAE. Advance payment terms stand out as a risk management strategy in southeast Asia and the US. In Australia, the UK, Brazil and Greater China, traders are looking to use export credit insurance. There is a role to be played by government-backed insurance schemes to address this need for risk management as appetite and capacity from private insurers to underwrite such risk remains significantly constrained.”

Globally, traders continue to cite volatile foreign exchange (FX) conditions and weak product demand as key challenges to business growth in the next three months. FX volatility is the top concern for respondents in Brazil (58%), the UK (56%), southeast Asia (53%) and Greater China (42%), while lack of demand is the major barrier for the US (36%) and Australia (40%). Forty-five percent of Indian traders and 35% of UAE traders are worried about insufficient profit margins and availability of credit, respectively.

Hong Kong

Hong Kong posted a nine-point improvement in outlook on trade, with a score of 102 in 3Q09, a 10% increase from 93 in 2Q09. Four in 10 respondents expect their trade volumes to increase in the next three months, from 24% in 2Q09.

The majority of Hong Kong exporters and importers (82% versus 79% in 2Q09) continue to actively trade with Greater China, followed by southeast Asia (63%) and the US/Canada (62%). Greater China continues to offer the biggest growth opportunities for half of the respondents (51%), while 10% consider the
US/Canada (versus 8% in 2Q09) and 9% consider central/eastern Europe (versus 5% in 2Q09) as potential growth drivers. More respondents cited insufficient profit margins (44% versus 42% in 2Q09) as a major barrier to business growth than FX volatility (43% versus 54% in 2Q09).

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