The Standard Chartered Hong Kong SME Leading Business Index, released by the Hong Kong Productivity Council on Thursday, showed that small and medium-sized enterprises have become more optimistic about the external economic outlook but remain cautious.

According to the survey, the “global economy” subindex rose 12.2 points to 33.1 in the third quarter and returned to its level recorded in the fourth quarter last year.

Moreover, two industries – import/export trade and wholesale, and professional and business services – recorded the largest increases in the “global economy” category, with rises of 15.6 points and 15.3 points respectively.

The overall index edged up by 0.8 points from the previous quarter to 44.1, still below the 50 neutral line, indicating that business sentiment remains cautious.

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In addition, one-quarter of surveyed SMEs have engaged in cross-border business, while another 11 percent indicated plans to expand into this area.

Tommy Wu, a senior economist at Standard Chartered, said the uptick in SMEs’ business confidence was affected by easing concerns following the US-Iran ceasefire declared in April, and falling global oil prices. He also highlighted strong exports amid the AI supercycle, alongside a recovery in the retail industry and domestic demand.

Data from the Hong Kong Trade Development Council shows electronics accounted for more than 70 percent of Hong Kong’s total exports in the first five months of this year, driving a robust 36.2 percent year-on-year rise in overall exports. Wu said that the global AI supercycle is immune to geopolitical headwinds.

Sustained long-term investment in artificial intelligence and data centers will continue across the US, China, and Europe, supporting an optimistic view on Hong Kong’s export opportunities, he said.

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However, the Standard Chartered survey, which polled 826 local SMEs in May and June, also found that 64 percent of SMEs currently have no plans to expand across the border. Regarding cost pressures, 64 percent of respondents anticipated an increase in raw material costs, which remained relatively high.

“The rise in CPI inflation on the lasting effects of the earlier surge in energy costs due to the Middle East conflict may weigh on consumer spending in the second half year,” Wu said, warning that SMEs’ profit outlook would be eroded due to the rise in energy costs.

Wu added that global financial markets have priced in the latest US-Iran tensions. Crude supply chains have already undergone sweeping adjustments over the past three to four months of geopolitical strains. Based on this, he predicted that Hong Kong SMEs’ exports will see inevitable yet mild impacts.

Karen Fung, HKPC’s chief marketing officer, added that as AI technologies become increasingly integrated into business operations, enhancing AI-application capabilities has become a key concern for many SMEs.

Contact the writer at charlottezhou@chinadailyhk.com