Affin Hwang Capital Research Highlights

Author: kltrader   |   Latest post: Mon, 20 Jan 2020, 8:51 AM


Malaysia Manufacturing PMI - Malaysia’s Manufacturing PMI Appears to be Bottoming Out

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Purchasing Managers’ Index (PMI) Rose to 49.5 in November

Malaysia’s manufacturing Purchasing Managers’ Index (PMI) improved and rose further to 49.5 in November from 49.3 in October, making this its highest reading since September 2018. However, the manufacturing PMI remained below 50-level since October 2018. According to IHS Markit, the better PMI was driven by the rise in new export orders for the first time in four months, where higher orders were registered from the Middle East and Asia-Pacific regions as well as an increase in sales to US customers. In addition, higher demand also resulted in a rise in output volumes. Furthermore, IHS Markit noted that backlogs of work had declined at a quicker pace as operating capacities were sufficient to meet with existing workloads. Meanwhile, employment levels were broadly stable during the month while producers’ outlook for production in the year ahead continued to be optimistic amid expectations of stronger demand and successful contract tenders. It was also guided that the future expectations index remains slightly above its year-todate average and above the level registered in November 2018.

Due to the sustained increase in Malaysia’s PMI reading since September, IHS Markit’s nowcast suggests that Malaysia’s GDP growth will expand above 5%, possibly in 4Q19. However, in 4Q19, we are projecting Malaysia’s real GDP growth to expand likely in the range of 4.5-4.7% in 4Q19 amid expectations of higher domestic demand especially from private consumption. Private consumption is expected to be supported by a healthy labour market, steady income growth and expectation of higher festive spending. Meanwhile, growth in private investment will likely recover supported partly by higher approved investments. For the full year 2019, we are maintaining our GDP growth projection of 4.7% in 2019 (4.7% in 2018).

In the coming months, we believe that some of the improvement in the global manufacturing activity will spillover to the domestic economy. For instance, in November, global manufacturing PMI increased to a seven-month high of 50.3 from 49.8 in October, its first reading above 50 since April 2019. In addition, Caixin China PMI rose to 51.8 from 51.7 in October, its best reading since December 2016. However, we believe external uncertainties will remain as a headwind to Malaysia’s manufacturing PMI especially if trade tensions between US and China are prolonged. Besides that, the sustained fall in exports of electrical and electronic (E&E) products in August and September 2019 is in line with the continued downturn in global semiconductor sales which suggests softer demand for Malaysia’s E&E products in the near term.

Similarly, Asean manufacturing PMI also increased to a four-month high of 49.2 in November from 48.5 in October. Despite this increase, the PMI has remained in the contractionary region since June 2019. Continually weighing on the PMI reading is the further fall in output, new business and employment. It was highlighted that employment figures fell for the sixth consecutive month as the rate of job shedding was at its second fastest pace since December 2015. However, Asean manufacturers continued to be optimistic as the level of positive sentiment rose to its highest since June 2019 as producers expect an increase in output levels over the next 12 months. Among the Asean-5 countries, the Philippines was the only country to record a reading above 50 (51.4) while Singapore registered the lowest reading of 47.4. Although Malaysia stayed below the 50-level mark, its PMI reading was higher than Thailand (49.3) and Indonesia (48.2).

Source: Affin Hwang Research - 3 Dec 2019

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