Affin Hwang Capital Research Highlights

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


Malaysia - Trade - Exports Declined by 6.7% Yoy in October

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But Smaller Decline in Manufactured Goods Exports in October

Malaysia’s exports declined for the third straight month by 6.7% yoy in October (-6.8% in September), led by the contraction in all major sectors, partially due to the high base effect in the corresponding period last year. The decline in exports was reflected in lower demand for manufactured goods, which fell by 4.5% yoy, albeit an improvement compared to -5.8% in September. Exports of mining goods also declined sharply by 24.6% in October vs. -15.2% yoy in September. Likewise, demand for agricultural goods contracted by 8.9% in October following a decline of 8.3% in September.

Despite the high base effect, exports of manufactured goods registered a smaller decine during the month, reflecting some improvement in demand for electrical and electronics (E&E) products. Exports of E&E products declined by 3.2% yoy in October from -12.2% in September. The smaller decline was supported by an increase in demand for telecommunications equipment, parts and accessories (3.4%) and thermionic valves & tubes and photocells (1.0%). In addition, the exports of parts and accessories for office machines also registered a lower decline of 0.7% in October after falling by 18.7% in September. Other manufactured goods which recorded positive growth were optical and scientific equipment (17.6%) and machinery and appliances (3.6%). However, weakness in exports of manufactured goods were reflected in petroleum products (-28.4%), manufactures of metal (-20.0%), liquefied natural gas (-17.1%), chemicals and chemical products (-12.7%) and palm oil (-9.5%), see Fig 1.

Demand for exports of mining goods was weighed down by declining exports of crude petroleum, due to a lower exports volume and Average Unit Value (AUV), while the lower exports of agriculture goods were due to declines in demand for palm oil and palm oil-based agriculture products, especially palm oil, which contracted by 9.8% yoy in October due to lower volume and AUV.

Exports to ASEAN, China, EU and Japan Declined in October

Malaysia’s exports to ASEAN declined by 2.8% in October from -8.5% in September, due to lower exports of E&E products, crude petroleum and petroleum products. Exports to China continued to decline for the third consecutive month, from -3.0% in September to -11.0% yoy in October, mainly due to falling demand for E&E products, petroleum products, chemicals and chemical products, as well as crude petroleum. Similarly, exports to the EU declined by 5.2% yoy in October, albeit slower than the 10.8% decline in September, due to lower exports of manufactures of metal, E&E products, rubber products as well as iron and steel products.

Malaysia’s exports to Japan also declined sharply by 20.1% yoy in October from -1.7% in September, pulled down by lower demand for LNG, E&E products and manufactures of metal and wood products. In contrast, exports to US registered growth in October although at a slower rate of 2.7% yoy (6.6% in September), supported by higher exports of manufactured products specifically for optical and scientific equipment, wood products, transport equipment and manufactures of plastics.

Imports Declined by 8.7% Yoy in October

Gross imports declined by 8.7% yoy in October after rising by 2.4% in September, weighed down by a broad-based decline in major import components. Imports of intermediate goods, which is an indicator of export performance, fell by 5.1% yoy in October (+11.1% in September). Meanwhile, imports of capital goods contracted by 11.5% yoy in October (+7.0% in September). Imports of consumption goods also declined by 5.0% in October (+15.1% in September).

In the first ten months of 2019, Malaysia’s export growth declined and averaged -1.8% yoy as compared to an average of +5.9% in the same period last year. The uncertainties surrounding the trade war between the US and China, after tariffs were imposed by both sides since 2H18, have continued to drag on the growth momentum in the global economy, as well as disrupted the supply chain in the global E&E industry. This was also in tandem with October’s global semiconductor sales, which continued to decline sharply by 13.1% yoy in October (-14.6% in September). However, the smaller decline in manufactured goods exports in October reflected possibly some trade diversion gain from the global trade tension. Although Malaysia’s exports continued to decline, we believe a recovery is likely in the following months, in tandem with the improvement in China and global manufacturing activity. Malaysia’s November manufacturing PMI improved to 49.5, slightly better than 49.3 in October. Global manufacturing PMI also rose to a 7-month high of 50.3 from 49.8 in October, its first reading above the 50-level mark since April 2019. We believe that Malaysia’s exports growth will be supported by the rising commodity prices. With gross exports exceeding gross imports, we project Malaysia’s trade surplus to reach RM130bn for 2019, higher than RM123.7bn in 2018, and the current account surplus to remain substantial at RM50bn for 2019 (RM33.5bn or 2.4% of GNI in 2018).

Source: Affin Hwang Research - 5 Dec 2019

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