Hong Kong's merchandise trade deficit widened from HK$25.37 billion in January to HK$45.4 billion in February. Exports fell 8.8 percent on the year in February after dropping 36.7 percent in January, while imports fell 4.1 percent after a decline of 30.2 percent previously.

The volatility in the magnitude of declines in trade flows between January and February partly reflects the timing of lunar new year holidays. These were mainly observed in February in 2022 but in January in 2023 and officials advise instead that it is more meaningful to examine combined January and February trade data. Exports fell 25.5 percent on the year for the first two months of the year after falling 28.9 percent in December, while imports fell 18.9 percent after dropping 23.5 percent December.

This weakness in trade flows in the first two months of the year was broad-based across major trading partners. Officials continue to expect external factors will weigh heavily on export performance in coming months, but expressed cautious confidence that improved conditions in mainland China and a relaxation in restrictions on cross-border truck movements may soon provide a boost to trade flows.

Hong Kong's external merchandise trade statistics are compiled based on information contained in import/export declarations. The Hong Kong Special Administrative Region is a separate customs territory, as stated in"The Basic Law of the Hong Kong Special Administrative Region of the People's Republic of China". Import/export declaration is also required of Hong Kong's merchandise trade with the mainland of China, and statistics relating to this are included in Hong Kong's external merchandise trade statistics.

Total merchandise trade refers to all the movements of merchandise between Hong Kong and her trading partners, by land, air, water and by post. It comprises imports, domestic exports and re-exports of goods. Imports of goods refer to goods which have been produced or manufactured in places outside the jurisdiction of Hong Kong and brought into Hong Kong for domestic use or for subsequent re-export as well as products of Hong Kong which are re-imported. Domestic exports of goods refer to the natural produce of Hong Kong or the products of a manufacturing process in Hong Kong which has changed permanently the shape, nature, form or utility of the basic materials used in manufacture. Re-exports of goods refer to products which have previously been imported into Hong Kong and which are re-exported without having undergone in Hong Kong a manufacturing process which has changed permanently the shape, nature, form or utility of the product.

Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they also affect currency values in foreign exchange markets. However, the foreign exchange impact is muted here given that Hong Kong’s currency is pegged to the United States dollar.

Imports indicate demand for foreign goods and services in the local economy. Exports show the demand for local goods in countries overseas. Movements in the trade balance directly affect GDP growth because of the Hong Kong's dependence on trade. Stronger exports are bullish for corporate earnings and the stock market. The bond market is also sensitive to the risk of importing inflation.

This report also gives a breakdown of trade with major countries as well, so it can be instructive for investors who are interested in diversifying globally. For example, a trend of accelerating exports to a particular country might signal economic strength and investment opportunities in that country.