PublicInvest Research

Author: PublicInvest   |   Latest post: Wed, 21 Apr 2021, 10:46 AM


Economic Update - A Mix Performance for ASEAN

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Malaysia’s Manufacturing Purchasing Managers’ Index (PMI) eased for the month no thanks to a full month impact of the Movement Control Order (MCO). The month’s reading of 47.7 is lower than 48.9 in January and a 5-year average of 48.5 amid resurgence in domestic and global COVID-19 new infections that hurt demand. The tactical decision to allow the manufacturing sector to open during the MCO period is expected to support the sector though we note on some impact following the need to revert back to partial economic closure. MCO 2.0 is better than MCO 1.0 however following certain relaxations in the economy that will avert a supply and demand shock condition. Note that the government put restrictions mostly on contact-sensitive industries (e.g; retail, services) while allowing other key sectors to open normally (e.g.; agriculture, manufacturing, construction), potentially averting the catastrophic impact to economic output like in 2Q20 (GDP: -17.1%).

The drop in our February Manufacturing PMI reading is consistent with a few ASEAN peers including Indonesia (February: 50.9; January: 52.2), Thailand (February: 47.2; January: 49.0) and Singapore (February: 55.2; January: 55.9) with the exception of the Philippines (February: 52.5; January: 52.5) and Vietnam (February: 51.6; January: 51.3). Note that only Malaysia and Thailand registered a contraction in the headline index leaving others with expansion. The mixed ASEAN performance is not a surprise following a spike in COVID-19 cases which could push for a targeted approach to flatten the curve of the pandemic again. Nevertheless, there are some signs of stabilization in ASEAN’s manufacturing sector post first wave COVID-19 following their Manufacturing PMI reading that is markedly and steadily higher than its low last last year.

ASEAN manufacturing PMI also eased (49.7; January: 51.4), its first contraction since October 2020 (48.6). The steady momentum of China’s manufacturing PMI which clocked-in its 12th straight month of expansion in February (50.9; January: 51.5) is expected to provide a positive spillover effect for the region especially those that have a favorable trade coupling with the country (Malaysia, Vietnam).

We see minimal downside risks for manufacturing sector especially when demand may remain strong for electrical and electronic (E&E) goods. The sustain demand for gadgets (cellular, tablets) following the transition towards a global 5G network migration will give the added push for the sector. The full economic openings in the region will also ensure no supply interruption and therefore, the full operation of manufacturing production. There is a bright prospect for the sector especially when the global COVID-19 vaccination drive is gathering in speed where herd immunity in the advanced economies (AEs) and ASEAN may be possible by the end of the year. There could be some volatility on the index however which is inevitable especially when COVID-19 remains a problem not only here but also around the globe.


Malaysia’s manufacturing sector endured a mild knock in February no thanks to a full month impact of MCO and resurgence in COVID-19 cases around the world that hurt demand. The February Manufacturing PMI reading of 47.7 that is lower than 48.9 in January and 5-year average of 48.5 could remain volatile especially when COVID-19 containment measures are still needed in order to flatten the curve of the pandemic. The headwinds of COVID-19 pushed firms to scale back production amid incoming orders that were also moderating.

Foreign demand was subdued as firms highlighted strict measures to curb COVID-19 infections in key international markets. That said, the pace of reduction in export sales fell at a softer pace than total new orders. Despite this, employment levels fell only marginally in February and at a pace that was softer than the previous month. Shortages of raw materials were among the drivers for an increase in input costs for the ninth consecutive month in February though firms passed the increase in gate price to clients. Ongoing supply chain disruptions weighed on firms inputs for production, reflected in a fall in purchasing activity which pushed firms to utilize existing stocks to fill orders. Firms remain hopeful that the end of pandemic condition would induce a recovery in domestic demand and external markets. On this score, most firms are hopeful that the end of the pandemic would result in stable operating conditions and could therefore, boost production and sales.


Recovery in manufacturing sector may gather in speed in the 2H following sentiment that is expected to improve following rapid vaccination drive around the world. We expect pockets of resurgence in COVID-19 infections to continue in the 1H where this may contribute to the volatility of the index. In any case, the sector’s outlook will be supported by a revival in global demand especially for E&E products amid a pent-up demand for computer and gadgets given a global pandemic condition that may push home-based for learning and work to continue. The race towards a full global migration toward 5G network by 2025 that paves the way for big data application will also bode well for the sector. Downside risks may come from the impending start of US-China trade talks which could take place in the 2H. Though the negotiation is likely to be more cordial than previously but investors sentiment may remain vulnerable especially on the length of the negotiations and the resulting increase in tariff (if any). This may push investors to the sideline and therefore, the headline index.


Source: PublicInvest Research - 2 Mar 2021

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