Both exports and imports fell by 3.1% y/y and 9.2% y/y, respectively in June. As a result of the sharper drop in imports, trade surplus widened in June to RM10.3bil from RM9.1bil in May. The poor performance in exports was due to a decline in E&E though resource-based activities provided some buffer.

We expect exports to perform tamely in the remaining months of 2019. Slower global growth and rising uncertainties will continue to weigh on global trade and commodity prices. In addition, the Japan-South Korea fallout is expected to disrupt the supply chain globally and will have some knock-on effects on the E&E segment. Hence we reiterate our 2.0% exports projection for 2019 with more downside risks.

• Exports’ performance has been volatile during the year. Of the six months, exports reported negative growth three times. This included the month of June where exports fell 3.1% y/y from +2.5% y/y in May.

• Imports, meanwhile, reported two months of negative growth during the 1H2019. In June, imports fell sharply by 9.2% y/y from +1.4% y/y in May. Hence the trade surplus in June rose to RM10.3bil from RM9.1bil in May.

• The poor exports’ performance was due to the Electrical & Electronic (E&E) segment which fell by 6.0% y/y in June from a gain of 0.5% y/y in May. It is the lowest reading since July 2016. Exports for optical & scientific equipment dropped by 4.9% y/y from +3.8% y/y in May and machinery, appliances & parts down 10.9% y/y from +14.9% y/y in May.

• Meanwhile, imports fell across the board. Capital goods were -23.6% y/y in June from -5.9% y/y in May. Likewise, both intermediate and consumption imports fell 2.5% y/y and 5.4% y/y in June from a gain of 6.4% y/y and 10.9% y/y, respectively in May.

• We expect exports to perform tamely in the remaining months of 2019. Slower global growth and rising uncertainties will continue to weigh on global trade and commodity prices. In addition, the Japan-South Korea fallout is expected to disrupt supply chain globally and will have some knock-on effects on the E&E segment. Hence we reiterate our 2.0% exports projection for 2019 with more downside risks.

Source: AmInvest Research - 5 Aug 2019