In July, exports grew 3.1% y/y (+8.0% y/y in June), beating market consensus of -1.4% while imports continued to decline for the fifth consecutive month at -8.7% y/y from -5.6% y/y in June. This brings the trade surplus to widen further to RM25.1bil from RM20.1bil in June – marking the highest monthly trade balance on record.

Exports benefited from the continued positive contribution from electrical & electronic (+9.2% y/y in July). Besides, notable gains were seen in: (1) palm oil exports (+43.2% y/y in July); and (2) rubber products (+93.9% y/y).

We are seeing some encouraging signs that external demand is gradually recovering. However, we expect exports’ growth to remain choppy in the coming months due to high-base effects. Also, much of the 2H2020 trade strength still depends on the sustainability of demand and the ongoing risk of the second wave of Covid-19 infections.

• In July, exports grew 3.1% y/y from 8.0% y/y in June and beating market consensus of -1.4%. On a monthly basis, exports rose 11.7% m/m. Meanwhile, imports continued to decline for the fifth consecutive month at -8.7% y/y from -5.6% y/y in June. This brings the trade surplus to widen further to RM25.1bil from RM20.1bil in June – marking the highest monthly trade balance on record. This partly explains the strengthening MYR trend in July, appreciating 0.8% m/m to 4.24.

• On a year-to-date basis, exports averaged by -5.6% while imports averaged at -6.7%. Looking at the sectoral breakdown, the stronger export performance was primarily supported by manufacturing goods (4.7% y/y from 13.7% y/y in June) and agriculture (30.4% y/y from 29.8% y/y in June). Meanwhile, mining exports remained depressed at -30.2% y/y in July from -45.6% y/y in June.

• In the sub-sectoral breakdown, we noticed electrical & electronic exports continuing to expand by 9.2% y/y in July from 15.9% y/y in June, moving in tandem with global semi-conductor sales (7.0% y/y in June from 3.4% y/y in May). Besides, notable gains were seen in: (1) palm oil exports climbing 43.2% y/y in July from 37.7% y/y in June; and (2) rubber products up 93.9% y/y from 101.1% y/y.

• Meanwhile, outbound shipments showed strong demand from China (+13.9% y/y); Singapore (+3.8% y/y); US (+28.6% y/y); Hong Kong (+1.5% y/y); and South Korea (+11.3% y/y). This helped to mitigate the poor demand from Japan (- 2.8% y/y), Taiwan (-4.6% y/y), Vietnam (-4.9% y/y), and India (-7.4% y/y).
   
• The decline in imports was driven by both capital and intermediate goods, which shrank 19.9% y/y and 17.3% y/y from 2.8% y/y and -10.8% y/y, respectively. These were more than sufficient to offset the small positive growth in consumption goods, which edged up 0.3% y/y in July from 8.0% y/y in June.
   
• We are seeing some encouraging signs that external demand is gradually recovering. However, we expect exports growth to remain choppy in the coming months due to high-base effects. Also, much of the 2H2020 trade strength depends on the sustainability of demand and the ongoing risk of the second wave of Covid-19 infections.

Source: AmInvest Research - 1 Sept 2020