The large trade surplus continued to support the domestic economy besides the RM305 billion stimulus measures and the easing of the restrictive measures to contain the Covid-19 virus spread.

With cumulative trade surplus at RM147 billion, some likelihood easing of political uncertainties on the domestic front, external reserves staying healthy at US$104.9 billion or 8.6 months of retained imports, and envisaging a weaker USD, these should bode well for the MYR to hover around the 4.07–4.10 levels by the end of the year. Exports for the year should contract between 2.5% and 3.0% from -0.8% in 2019.

• Trade surplus in October 2020 widened to RM22.12 billion, registering a double-digit growth of 25.9% y/y, the highest ever recorded. It was supported by the increase in exports and fall in imports.

• Exports reached RM91.05 billion in October 2020, increasing by 0.2%y/y and 2.4% m/m. This was the third highest export value recorded thus far. The expansion was supported mainly by higher exports to the US, China, India and the UK. Imports totalled RM68.93 billion, decreasing by 6% y/y or 2.9% m/m.

• Electronics led the bounce in exports, growing by 0.2% y/y and 2.4% m/m in October. These benefited from the recovery in Asian exports that have gained momentum in recent months.

• Commodities, the other dominant export category, was a mixed bag. Palm oil and rubber exports posted strong growth but the fuel cluster (crude petroleum, petroleum products and liquefied natural gas) continued to remain weak from global demand and prices.

• Palm oil and rubber exports registered strong growth at 46.5% y/y and 127.3% y/y, respectively. India remains the largest palm oil importer, buying around 424K tonnes or an increase by 13.1% as compared to the previous month. Contributions from palm oil and rubber to the total exports are 6% and 5.7% in October. The rise in rubber products contribution is due to the windfall gains from the current pandemic virus.

• Imports fell for the 8th straight month by 6.0% y/y. The drag came from iron & steel products (-30.0% y/y) and manufactures of metal (-18.2% y/y). They were the weak spots in imports. Both capital and intermediate imports shrank by 17.1% y/y and 6.1% y/y in October from -2.2% y/y and -17.7% y/y, respectively. Meanwhile, consumption goods climbed by 6.5% y/y from 11.2% y/y in September.

• With a cumulative surplus of RM147 billion in the first 10 months of the year, it was RM1.3 billion higher than the year-ago period and this would lend support to the ringgit. Also, after Budget 2021 has been cleared at the policy level, the focus now is at the committee level which is the third stage. Should this be cleared, it will help soften uncertainties for a period of time.

• Also, external reserves are at a healthy US$104.9 billion or 8.6 months of retained imports. That would bode well for the MYR. Besides, the USD is expected to stay weak and this will also provide positive impetus. On that note, the ringgit is expected to stay firm around the 4.07–4.10 levels by the end of 2020. And exports for the year should contract between 2.5% and 3.0%.

Source: AmInvest Research - 30 Nov 2020