External trade continues to be upbeat in June, beating market expectations as it recorded a healthy 27.2% y/y growth at RM105.5bil of exports (cons. 11.7%), and 32.1%y/y increase at RM83.2bil of import (cons. 18.2%). This expanded the trade surplus by 11.7% y/y to RM22.2bil.

Despite the latest MCO restrictions imposed in June, some intended leeway was given to over 95,000 companies to operate during the time with limited capacity. Such move had helped the economy remain resilient against the downside pressure, hence performed persistently better than our expectations. Moving forward, as more states move to the subsequent phase of the National Recovery Plan (NRP), supported with the rapidly progressing vaccination rate, Malaysia will be well on the path towards economic recovery.

Currently, for the full year of 2021, we are cautiously optimistic, maintaining our forecast of growth of exports at 15% while growth for imports will be at the 13% level.

A. Highlights

• Despite the diminishing low-base effect, exports are maintaining its strong performance in June, logging an increase of 27.2% y/y to RM105.5bil, compared to RM82.9bil in June last year. This is the third time it surpassed the RM100bil mark, after RM105.6bil recorded in April and RM104.9bil in March.

• This brings the average exports for 1H2021 up to 31.9%, well above our current 15% forecast for the year 2021.

• The manufacturing sector, which covers 86.6% share of total exports, contributed to the export growth with 25.8% y/y (vs. May 47.3% y/y) and was supported by the increased demand of petroleum products (113.6% y/y vs. 75.1% /y in May), rubber products (103.5% y/y vs. 133.2% in May) and E&E products (14.1% vs. 34.3% y/y in May).

• Looking at imports, these expanded by 32.1% y/y to RM83.2bil, compared to RM62.9bil in June last year, following its fastest growth in May at 50.3% y/y since 1998.

• The import figure was dominated by end-use products with a whopping 71.6% of total imports. Specifically, it was supported by intermediate goods (25.3% y/y growth vs. 52.4% in May), capital goods (+15.2% y/y vs. 34.0% in May) and consumption goods (+19.2% y/y vs. 37.8% y/y in May).

• As a result, the trade surplus widened to RM22.2bil from RM13.7bil in May, bringing the trade balance for 1H2021 to RM115bil.

• The government reimposed a third round of the MCO in June due to surging Covid cases that reached the 5,000 mark. This is in response to the spread of the contagious Delta variant.

• To reduce the severity of pandemic restrictions’ effects, 18.4% from a total of 517K companies were given permission to operate during the lockdown with 60% capacity, at most. These sectors included manufacturing and manufacturing-related services, electrical & electronics, oil and gas, and etc.

• Such move had helped the economy remain resilient against the downside pressure, supported by strong demand for Malaysia’s manufactured products, hence performed persistently better than our expectations.

B. Key Takeaways

• Consequently, on a monthly basis, external trade rose across the board, with exports climbing 14.3%, and imports rising by 5.9%. Trade surplus soared 61.7% and total trade increased 10.4%.

• Moving forward, foreign trade activities in July are expected to hit some obstacles as the nation went under tighter restrictions during the EMCO in early July. However, the downside will be less severe as more states moved into phase 2 of the NRP where more sectors and activities are allowed to operate with up to 80% capacity.

• The current focus would be to ensure a better pandemic management while maintaining the momentum of the vaccination rate.

• Any risk that could slow down the reopening of the economy and cause prolonged restrictions, would cloud a positive future prospect for bigger companies to continue operating in Malaysia.

• With the national target of getting 100% adults fully vaccinated by October, we expect export activities to meet or even overshoot our 15% target for the whole year 2021, supported by strong demand towards E&E, rubber and chemical products.

Source: AmInvest Research - 30 Jul 2021