Strong China Demand Leads to Better-Than-Expected June
Exports
Contraction in June exports was the smallest in seven months -- Exports
declined 5.4% yoy in June, much better than market expectation. The main
driver was surging exports to China (from -10.8% yoy in May to 9.3% yoy in
June). Contraction in exports improved to -12.9% yoy in Q2 from -21.9% yoy in
Q1, pointing to less GDP contraction in Q2.
June imports also surprised on the upside -- Imports declined 7.9% yoy in June,
much better than market expectation of -12.1% and our expectation of -11.0%.
In Q2, contraction in imports improved to -14.9% yoy from -22.8% yoy in Q1.
Trade deficit increased to HK$16.5bn in June – But this is not a concern given
that Hong Kong’s FX reserves kept increasing to US$207.0bn in June helped
by surging capital inflows.
We expect stronger China demand in 2H to underpin HK exports further, but
exports likely will remain in contraction until December this year when base
effect starts to kick in.