PublicInvest Research

Author: PublicInvest   |   Latest post: Tue, 28 Jan 2020, 3:43 PM


November 2018 Trade - Export Slows in Tandem With Peers

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There was a slowdown in export activity in November, damped by cautiousness ahead of the new tariff on China’s goods in January, a trend consistent across all major export powerhouses including China, Singapore, Vietnam, Thailand and Indonesia. In fact, Thailand, Singapore and Indonesia’s export growth turned negative for the month, signaling a more severe impact for both. Export momentum was also dented by the high base effect following elevated level of exports last year (November 2017: 14.4%). Exports slowed to 1.6% YoY as a result, below consensus expectation of 6.6%, down from a strong 17.7% in October, pushing YTD average to 7.0% (YTD 2017: 20.6%).

November’s export growth was supported mostly by refined petroleum (+49.0% YoY), LNG (+26.4% YoY) and crude petroleum (+17.7% YoY), consistent with the previous months’ trend although E&E showed a sharp pullback (November: -1.7%; October: 23.3%). Imports slowed in tandem with exports, not surprising given Malaysia’s sizeable re-export activity, to 5.0% YoY from 11.4% in October, resulting in a 24.0% YoY reduction in trade surplus to RM7.5bn (October: RM16.3bn). YTD trade surplus remained favourable (RM109.5bn; +20.2% YoY), comfortably surpassing 2017’s RM98.5bn.

The slowdown in imports was caused by slower growth in consumption goods (+0.9%) and capital goods (+0.4%) amid the contraction in intermediate goods (- 0.3%). November’s trade value dropped to RM162bn (October: RM176.4bn), a more normalized and sustainable level in our view. YTD export growth of 7.0% YoY was underpinned by sustained demand for manufacturing and resource based exports which could have been higher if not for the unfavorable base effect (2017: 19.3%).

E&E export growth dropped to -1.7% YoY in November following a sizzling October (23.3%) and may be uninspiring until and unless there is a solution to the current US-China trade impasse. Agricultural exports remained a source of pain following its 10th contraction of the year in November (YTD: -13.6% YoY), led by palm oil (November: -15.7%) and natural rubber (November: -16.9%). The declines in November were caused by drops in unit value and volumes.

We highlight the lack of turnaround catalyst for natural rubber following its persistent decline since January. Natural rubber YTD growth has been uninspiring, a similar fate befalling palm oil. We foresee a less-than-sanguine outlook for both in the near term following protracted supply-shock conditions, although this may be negated by fiscal interventions (e.g. diversification into new markets - ASEAN, Africa and Central & Eastern Europe). Average CPO price may remain steady at RM2,200 per tonne in 2019 (2018E: RM2,200 per tonne) which is fair considering the elevated level of stocks in 2018 (YTD November: 3.0mn tonnes).

There was a noticeable slowdown across global PMI manufacturing indexes in December, with the exception of Japan, post year-end festivity rush and ahead of China’s new export tariffs that is due to start in January. This includes global (October: 52.0; November: 51.5), US (October: 55.3; November: 53.8), Eurozone (October: 51.8; November: 51.4), China (October: 50.0; November: 49.4) and Japan (October: 52.2; November: 52.4). The contraction in China’s PMI manufacturing index signals the stress arising from the trade impasse which we hope to see piece meal solutions for, by the end of February. Of note, ASEAN’s manufacturing PMI index for November has eased further and is now bordering on contractions (October: 50.3; November: 50.2).export leaders like China and Singapore. In fact, the strain of trade stress is more severe in some countries. Our November export growth is lagging Vietnam (6.5%) and China (5.4%) but ahead of Thailand (-0.95%), Singapore (- 2.6%) and Indonesia (-3.2%). Regional export momentum may remain in the doldrums unless and until there is a solution to the trade impasse.

November 2018 exports. Export growth was less-than-encouraging in November, doused by trade uncertainty and high base effects (November: 1.6%; October: 17.7%). Growth for the month was supported by resource based exports led by refined petroleum (+49.0%) and LNG (+26.4%). Export value for the month reduced to a more palatable and sustainable level of RM84.7bn (October: RM96.3bn, September: RM82.9bn), and may remain at this level until there is a normalization in global trade. On a monthly and seasonally-adjusted basis, exports contracted by 12.9% against a growth of 15.1% the month before.

China remained as Malaysia’s most important trade partner with a share of 16.7% in the first 11 months of the year, a position it has maintained for quite some time, ahead of Singapore at second place (12.9%). This is followed by the E.U (9.8%), US (8.3%) and Japan (7.0%). As for exports, China occupied the top spot at 13.9% share together with Singapore, whilst for imports, China is our largest source at 19.8% share, ahead of Singapore in second place (11.8%).

Malaysia’s re-exported goods eased markedly to RM15.9bn in November (October: RM20.8bn), chalking a MoM decline of 23.5%. Re-exported goods accounted for +18.7% of exports in November, a drop against October’s (+21.6%). Malaysia shipped higher export volume to HK, China, Vietnam, Taiwan and Singapore, offsetting the drop in export volume to US, Japan, EU, Turkey, India, Republic of Korea and Switzerland.

October 2018 imports. Import growth dropped to 5.0% YoY in November (October: 11.4% YoY) pulled down by slower growth in consumption (+0.9%) and capital goods (+0.4%) on the back of contraction in intermediate goods (- 0.3%), which was further dampened by unfavorable base effect (November 2017: 15.2%). Goods that supported imports for the month include transport equipment (+151.7% YoY), fuel and lubricants – primary (+115.2% YoY), and fuel and lubricants – processed (+32.6% YoY).

On a monthly and seasonally-adjusted basis, export growth eased to 1.2% from 13.7% in November. There is a weak evidence of demand-driven inflation given the stable consumption goods share of 7%-9% in the last few months.


We are cautiously optimistic that the on-going trade impasse may be solved, albeit through piece meal solutions, by the end of February. At the moment, even a competitive currency cannot lift trade as sentiment is being hit by weak demand and brewing uncertainty. On a positive note, trade may vault much higher to offset the last few weaker-than-normal months should the trade logjam be diffused convincingly by the end of February.

Source: PublicInvest Research - 7 Jan 2019

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