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PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 24 Sep 2020, 10:46 AM

 

July 2020 Malaysia Manufacturing PMI Index- Encouraging Trend

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OVERVIEW

Malaysia’s manufacturing Purchasing Managers’ Index (PMI) recorded another encouraging reading in July, with the country emerging as the only country in the region with an expansion in manufacturing activity thanks to a full month impact of the economy re-opening following the Recovery Movement Control Order (RMCO) that started in June. Note that the RMCO is expected to come to an end in August with the economy expected to be opened fully in September, barring unforeseen circumstances.

The steady reading of 50.0 in Malaysia’s manufacturing PMI for July (June: 51.0) is a sharp rebound against the index’s historical low of 31.3 in April during the peak of Covid-19. The month’s achievement is respectable given that it is above the index’s long term average of 49.0 which was achieved despite the imposition of strict Standard Operating Procedures (SOP) to tackle the spread of Covid-19. This is also a testemant to our resilience amid our ASEAN peers struggling to keep their manufacturing activity humming. This is also a feat considering the challenging economic conditions of our major trading parters especially the US, Eurozone and Japan that remained affected by Covid-19.

Malaysia emerged as the only country in the region with an expansion in manufacturing activity. Contractions were seen in Singapore (July: 37.3; June: 38.8), Thailand (July: 45.9; June: 43.5), Philippines (July: 48.4; June: 49.7), Indonesia (July: 46.9; June: 39.1), and Vietnam (July : 47.6; June: 51.1), reflected in the ASEAN headline index (July: 46.5; June: 43.7). We are cautious on the outlook of the ASEAN manufacturing sector as COVID-19 remains a source of problems for the world againtst the backdrop of a steady rise in the number of confirmed cases which has exceeded 18m so far. The longer-than expected breakthrough for a COVID-19 vaccine may weigh on global recovery which is expected to rebound in 2021 (+5.4%; 2020F: -4.9%).

ANALYSIS: MALAYSIA JULY MANUFACTURING PMI

Malaysia’s manufacturing sector was resilient in July, boosted by the full month impact of the economy re-opening following the RMCO phase since June. Output expanded with improved new orders which underpinned the index’s steady form for the month. Firms continued to operate below capacity however and expressed further caution around hiring, particularly in the face of rising input costs. Firms attributed higher input prices to supply shortages of raw materials which pushed them to increase selling prices.

Demand remained fragile as the pandemic continued to impact the sector which is reflected in new export orders that softened by a greater extent than in June. The COVID-19 situation has been hampering firms’ abilities to receive purchased input in a timely manner that has led to lengthened delivery times for eight consecutive months. Finally, inventories for purchases and finished goods were reducing but at slower rates than in June which could get even slower if demand remains weak especially from external markets.

OUTLOOK

We are cautious on the near term outlook amid COVID-19 headwinds that remain strong. The longer-than-expected breakthrough for a vaccine is also a concern as the number of confirmed cases may continue to rise - putting global recovery at risk. Near term outlook is also weighed by the re-emergence of US Sino conflicts and messy US presidential election which may affect its focus in managing the COVID-19 pandemic and therefore, its economic recovery. This may be offset however by China’s steady manufacturing form which clocked-in its fourth straight month of expansion since March

Source: PublicInvest Research - 5 Aug 2020

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