Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Tue, 4 Aug 2020, 6:38 PM


Malaysia Manufacturing PMI- Recovery gained traction in June, first expansion in 21 months

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● Manufacturing PMI rebounded sharplyin June, charting its first expansion in 21 months (51.0; May: 45.6)

- Attributable to further reopening of economic activities as the nation entered the Recovery Movement Control Order (RMCO) phase on 10 June.

● Output index rose, matching the record high

- Reflecting resumption of factory operations, with some factories registering a faster production rate in order to clear backlogs.

- New orders picked up to a six-month high, underpinned mainly by improved domestic demand. While new export orders recorded smaller contraction, underlying weakness in foreign demand prevailed with major countries remained subjected to a certain degree of business restrictions.

● Degree of optimism strengthened to a four-month high

- Lifted by expectation of a rise in production volume next year, in line with the gradual recovery in economic activity.

- However, with current outstanding work remained broadly flat, employment level was kept unchanged.

● Prices moved into inflation territory on input sourcing challenges

- Suppliers raised input prices due to unfavourable exchange rate movements, stock shortages and higher transport fees resulting from COVID-19 travel restrictions.

- Higher input cost was passed down to consumers, with output prices increasing for the first time in 2020.

● Improved manufacturing performance across regions

- US (49.6; May: 39.8): accelerated to a 4-month high on smaller decline in output, new orders and employment. These underpinned hopes of a swift economic recovery, lifting confidence among manufacturers.

- China (51.2; May: 50.7): registered an uptrend for two straight months, with continued expansion in production amid marked improvement in demand, specifically from the domestic market.

Continued relaxation of COVID-19 restrictions to support further improvement in the manufacturing sector

- Manufacturing sector is expected to portray an improved business condition in the next few months, steered largely by the domestic-oriented activities. Meanwhile, export-oriented operations may be capped by broad weakness in foreign demand, a resurgence in COVID-19 infections and the brewing geopolitical tension.

- Against this backdrop, we retain the value-added manufacturing growth forecast at -6.3% in 2020 (2019: +3.8%) in line with the expected decline in GDP growth (-2.9%; 2019: 4.3%)

Source: Kenanga Research - 2 Jul 2020

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