HONG KONG

2 May 2013

Economic Highlights

Liang Siew Huay +65 6232 3851 siewhuay.liang@sg.oskgroup.com

Retail Sales Eased More Than Expected in March

Growth in Hong Kongs retail sales value slowed to 9.8% yoy in Mar, following a r ise of 22.7% in Feb and compared with +15.8% yoy in the first two months of 2013. The number was marginally lower than our forecast and consensus median estimate of 14.7%, suggesting Chinas slowing growth in the 1q and its outbreak of H7N9 bird flu since Mar might have darkened consumer sentiment in Hong Kong in recent weeks although the slower rate of increment also partly reflected a higher base last year. By volume, retail sales decelerated from +21.9% in Feb to +10.2% in Mar, and compared with +15.5% yoy in Jan-Feb. According to the statistics department, the slightly lower yoy growth rate for Mar retail sale value compared with the volume was mainly due to a drop in the prices of electronic and electrical products. In our view, the slower hiring in Mar might have also weighed on sales as the seasonally adjusted unemployment rate edged up to 3.5% from 3.4% in Feb.

F E A F T A x T t x M t a R c i r s o k | Overall, the slowdown in retail spending in Mar was broad-based, including a weaker demand for jewellery, s watches and valuable gifts, which are the largest component of total retail sales by value and one of the key | purchased items of Mainland tourists. The sales volume of jewellery, watches and valuable gifts rose only 9.8% yoy in Mar, compared with +27.9% in Feb as visitor arrivals from Mainland China slowed to 13.8% after growing by 36.4% in the prior month. As a whole, Mainland Chinese tourists accounted for 72% of total visitor arrivals in Hong Kong in 2012 and represented most of the visitor growth in recent years. Likewise, the sales volumes of consumer durables and other consumer goods slowed to +21.5% and +1.7% yoy in Mar respectively, compared with the corresponding rates of +29.2% and +12.0% in Feb. Retail sales volume also slowed at supermarkets (+2.0%) and department stores (+19.7%) and for clothing and footwear (+13.7%) in the month. The only broad retail category with faster yoy sales growth in Mar was fuels, which rose 3.0%, after a 5.4% drop in volume in Feb. Meanwhile, the sales volume of food, alcoholic drinks and tobacco fell 5.7% in Mar, following a rebound of 8.2% in Feb. In 1q13, total retail sales rose by 13.9% yoy in value, compared with +7.6% yoy in 4q12 and +15.8% in the same quarter a year ago. Meanwhile, total sales volume grew by 13.8% in the first quarter, compared with +6.9% in 4q and +10.7% in 1q12, suggesting that real retail spending had started to rise again and private consumption might continue to provide the main support to GDP growth in the 1q. Looking ahead, the retail sales outlook for the months to come has become a little cloudier given the worsening of bird flu in Mainland China in the last few weeks and renewed fears of a continued slowdown in the Chinese economy. Nevertheless, the positive income conditions would likely continue to support local retail sales in the near term. Hong Kongs Retail Sales and Mainland Visitor Arrivals

40 35 30 25 20

Retail sales volume Retail sales value Mainland visitor arrivals

% chg, yoy

Sales Volume of Major Items Other consumer goods Consumer durable goods Jewellery, watches & valuable gifts
70 60 50 40 30 20 10 0 -10 % chg, yoy

15
10 5 0

Source: C&SD, HKTB, CEIC, OSK-DMG

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