October’s exports surged, growing by 17.7% y/y — the third time in 2018 for exports to grow at a double-digit pace while imports rebounded with a strong double-digit growth of 11.4% y/y after a drop in September. Supported by strong exports growth, the trade surplus in October was the highest for the year at RM16.3bil from RM15.2bil in September.

Supporting exports is the electrical & electronic (E&E) segment of the business activities, especially the electronics segment that will continue to benefit from the favaourable global semiconductor market performance. We believe the growing focus on the Internet of things’ (IoT) megatrend that has multiple applications and increasing use of wearable gadgets, smart home applications, automotive industry, and the use of artificial intelligence (AI) technologies we see our electronics sector continue playing a pivotal role. Other export components that will conitue to contribute positively are the resource-based activities.

With strong exports growth, we have revised upwards our 2018 exports outlook to 7.2% from previously 6.5%. However, we conintue to maintain our full-year GDP growth at 4.6% for 2018, which is slightly lower than the official projection of 4.8% and predict the economy to grow around 4.5% in 2019. On that note, we believe BNM will maintain the current OPR of 3.25% throughout 2019, with the aim to support growth and at the same time ensure inflation remains at a comfortable level which we project at 1.8% for 2019.

• October’s exports surged, growing by 17.7% y/y from 6.5% y/y in September. It is the third time during the year for exports to grow at a double-digit pace. Hence, the year-to-date (YTD) average growth was 7.6%. Meanwhile, imports rebounded with a strong double-digit growth of 11.4% y/y in October from -2.8% y/y in September, bringing the YTD average to 5.6%. Supported by strong exports growth, trade surplus in October was the highest for the year at RM16.3bil from RM15.2bil in September.

• Supporting exports is the electrical & electronic (E&E) segment of the business activities. It accelerated by 23.3% y/y in October from 6.5% y/y in September. We expect this segment of the business, especially the electronics will continue to perform favaourably as we move forward. Global semiconductor market revenue is envisaged to grow at a healthy pace supported by the megatrend of the Internet of things (IoT) that has multiple applications and increasing use of wearable gadgets, smart home applications, automotive industry, and the use of artificial intelligence (AI) technologies.
• Hence, our electronics sector is expected to continue playing a pivotal role. With a growing focus on integrated circuit (IC) design innovation and the adoption of Industry 4.0, this paves way to move up the value chain. Besides, Asia Pacific and in particular China and India, would dominate the smart display market for the automotive industry. Also, the current US-China trade war should have a positive impact on Malaysia.

• Other export components that contributed positively to exports revenue are petroleum products, up 23.3% y/y versus 6.5% y/y in September, as well as chemical & chemical products which edged higher to 36.5% y/y from 31.7% y/y in September. At the same time, export revenue from the liquefied natural gas, which stayed in the negative region for the past four months, rebounded to 2.6% y/y from -16.8% y/y in September.

• In the meantime, imports rose strongly, supported by higher demand for consumption and intermediate goods. Import demand for consumption goods climbed 7.6% y/y from -10%y/y in September. Meanwhile, imports for intermediate goods increased by 1.0% y/y from -9.5% y/y in September. Between the two import components, we view positively the improved performance by intermediate imports as it will act as an “injection” to the potential economic growth compared to consumption.

• Meanwhile, capital imports fell for the second straight month. In October, it dropped by 1.6% y/y from -21.4% y/y in September. Weak demand for imported capital goods is of a concern to the potential economic performance. We found the drag was due to ex-transport equipment which fell -3.4% y/y from -10.7% y/y in September.

• With strong exports growth, we have revised upwards our 2018 exports outlook to 7.2% from previously 6.5%. However, we conintue to maintain our full-year GDP growth at 4.6% for 2018, which is slightly lower than the official projection of 4.8% and predict the economy to grow around 4.5% in 2019. On that note, we believe BNM will maintain the current OPR of 3.25% throughout 2019, with the aim to support growth and at the same time ensure inflation remains at a comfortable level which we project at 1.8% for 2019.

Source: AmInvest Research - 6 Dec 2018