In May, exports grew faster at 2.5% y/y from 1.1% y/y in April while imports slowed down to 1.4% y/y compared to 4.4% y/y in April. Meanwhile, trade surplus narrowed to RM9.1bil in May from RM10.9bil. Nonetheless, the latest trade number signals external demand remains weak as year-to-date exports grew marginally by 0.2% y/y while imports remained in the negative region at -0.6% y/y.

At this juncture, we remain cautious on external trade due to the downshift in the global manufacturing sector as reflected in June’s Global Manufacturing PMI, easing to 49.4 points from 49.8 points in May. Besides, the survey also highlighted operating conditions deteriorated again in the intermediate and investment goods industries. Having said that, we believe export performance to be tepid for the rest of 2019 and projecting a 2.0% y/y growth for 2019.

• In May, exports grew faster at 2.5% y/y from 1.1% y/y in April while imports slowed down to 1.4% y/y compared with 4.4% y/y in April amidst trade tensions escalating after the White House raised tariffs on US$200bil worth of Chinese imports to 25% from 10% effective 10 May. Meanwhile, trade surplus narrowed to RM9.1bil in May from RM10.9bil. Nonetheless, the latest trade number signals external demand remains weak as year-to-date exports grew marginally by 0.2% y/y while imports remained in the negative region at -0.6% y/y.

• The faster exports was primarily supported by an outperformance of resource-based products with palm oil and palm oil products witnessing a strong rebound to 7.6% y/y in May from -14.8% y/y in April; timber & timber-based products accelerating to 15.0% y/y versus -3.1% y/y in April; and interestingly, cocoa beans exports rose 5.1% y/y in May from - 20.6% y/y in April.

• Meanwhile, electrical & electronic (E&E) exports decelerated to 0.6% y/y in May from 3.9% y/y in April. The slowing E&E exports is not too much of a surprise to us owing to the maturing tech cycle amid escalating trade tensions. As of April, the World Semiconductor net billings contracted by 17.7% y/y from -14.4% y/y in March, marking a low since 2009. At this juncture, we remain cautious on E&E exports going forward, underpinned by moderating external demand in particular from the EU and China as well as the US-China trade tension overhang in place.

• Nonetheless, the slower imports were primarily driven by a decline in capital goods, down 5.9% y/y from a gain of 5.7% y/y in April. Besides, both intermediate and consumption goods decelerated to 6.4% y/y and 10.9% y/y respectively in May compared with 20.3% y/y and 18.9% y/y respectively in April.

• Looking at the Asean region, Asean 5 export growth has remained in the negative region since December 2018, down 4.2% y/y in April from -5.7% y/y in March. In contrast, the outperformer in the region is Vietnam, recording an average growth of 6.9% y/y in 1H2019 supported by trade war tailwinds. Meanwhile, export performance from advanced economies like the US, South Korea and China are slowing down rapidly — signalling anecdotal evidence of moderating external demand.

• At this juncture, we remain cautious on external trade due to the downshift in the global manufacturing sector as reflected in June’s Global Manufacturing PMI, easing to 49.4 points from 49.8 points in May. Besides, the survey also highlighted operating conditions deteriorated again in the intermediate and investment goods industries. Having said that, we believe export performance to be tepid for the rest of 2019 and projecting a 2.0% y/y growth for 2019.

Source: AmInvest Research - 5 Jul 2019