Exports continued to surge for the fifth straight month in April, up 20.6%y/y while imports rose 24.7%y/y, bringing the trade surplus in April to RM8.8bil. We believe the improving external demand and firm commodity prices as well as volume help maintain the strong trade numbers reflected by the manufacturing, mining and agriculture data in April, up 17.3%y/y, 51.8%y/y and 20.9%y/y respectively. We expect the positive trend from exports to continue in the coming months, supported by a combination of steady export volume growth, firm commodity prices as well as low base. Our 2017 global growth projection remains at 3.3% in 2017 and 3.5% in 2018 with our export volume growth at 3.0% in 2017 and 3.4% in 2018.

While the current export and import data looks promising, supported by a recovering global demand and an easing potential trade war threat, we believe there is still downside risk to growth. Key data such as the Purchasing Managers’ Index remains less exciting. It fell to 48.7 in May after a brief 50.7 reading in April, which is an expansion, dragged by lower new export work as well as lower new orders. Inventory level has also depleted and firms are busy streamlining stocks amid subdued demand. It points to potential weaknesses from manufacturing due to weak domestic and external demand.

• Exports continued to surge in the month of April. It climbed 20.6%y/y from 24.1%y/y in March, reflecting the fifth straight month of double-digit growth. Meanwhile, imports also maintained its double-digit growth for the 6th straight month, improving by 24.7%y/y in April from 39.4%y/y in March. Hence, total trade surplus swelled to RM8.8bil in April from RM5.4bil in March.

• We believe the improving external demand and firm commodity prices as well as volume help maintain the strong trade numbers. For instance, manufactured exports, which make up about four-fifths of total exports, grew 17.3%y/y in April, benefitting E&E (+22.2%y/y); chemical & chemical products (+18%y/y); and a turnaround in manufacturers metal which rose 17.3%y/y. Mining goods enjoyed a huge gain of 51.8%y/y from both price and volume play, while agricultural goods was supported by palm oil products rose 20.9%y/y.

• Looking at imports, we noticed strong contribution from capital and intermediate imports. We foresee the contribution from this segment to remain healthy as we move forward in 2017 though the data could be fairly volatile, especially capital imports figures.

• We expect the positive trend from exports to continue in the coming months, supported by a combination of steady export volume growth, firm commodity prices as well as low base. We maintain our 2017 global growth projection at 3.3% in 2017 and 3.5% in 2018 while holding our export volume growth at 3.0% in 2017 and 3.4% in 2018.

• While the current export and import data looks promising, supported by a recovering global demand and an easing potential trade war threat, we believe there is still downside risk to growth. Key data such as the Purchasing Managers’ Index remains less exciting. It fell to 48.7 in May after a brief 50.7 reading in April, which is an expansion, dragged by lower new export work as well as lower new orders. Inventory level has also depleted and firms are busy streamlining stocks amid subdued demand. It points to potential weaknesses from manufacturing due to weak domestic and external demand.

Source: AmInvest Research - 6 Jun 2017