Malaysia

Favourable business sentiment

In April, the trade data performed better-than-expected, with export accelerating by 14.0% y/y compared to 2.2% y/y in March. Meanwhile, imports rebounded significantly from two consecutive months of decline, up 9.1% y/y in April from -9.6%y/y in March. This brings April’s trade surplus to a favourable spot of RM13.1bil versus RM14.7bil.

Meanwhile, we maintain our 2018 exports projection at 9.0% y/y on the back of: (1) healthy global growth; (2) firm commodity prices; (3) favourable forward-looking business sentiment; and (4) implementation of business-friendly policies i.e. zero GST till the implementation of SST and stable fuel prices. However, the escalating trade war does pose a threat to our base case export projection as there are strong signs of retaliation from the countries affected as well as uncertainty in the US-North Korea meeting.

• In April, the trade data performed better-than-expected. Exports accelerated by 14.0% y/y compared to 2.2% y/y in March, beating both market and our expectations of 6.3% and 3.5% respectively. Meanwhile, imports rebounded significantly from two consecutive months of decline, up 9.1% y/y in April from -9.6% y/y in March. This brings April’s trade surplus to a favourable spot of RM13.1bil versus RM14.7bil (consensus: RM12.2bil).

• The faster-than-expected export data was largely driven by electrical and electronic products, posting a double-digit growth of 21.2% y/y in April from 8.7% y/y in March. Besides, refined petroleum products and crude petroleum registered a notable growth of 38.9% y/y and 22.7% y/y owing to the rising global demand/crude prices. However, the LNG and natural rubber slowed down further to by -12.5% y/y and -42.6% y/y compared to -13.3% y/y and -37.8% y/y in March, respectively.

• Despite imports crossing into the positive growth trajectory, the intermediate and consumption goods performed poorly, falling -11.9% y/y and -1.8% y/y in April versus -14.4% y/y and -12.4% y/y, respectively in March. However, capital goods rose 4.8% y/y in April compared to a decline of 30.5% y/y in March.

• The intermediate goods marked the fifth consecutive month of a declining trend, indicating the lacklustre demand in the manufacturing industry. This was also well reflected in the Manufacturing Purchasing Managers’ Index (PMI) in which the index deteriorated to 48.6 in April from 49.5 in March. While the PMI has indicated further deterioration in the month of May (47.6), we expect imports growth to remain at a moderate pace in the coming months.

• Meanwhile, we maintain our 2018 exports projection at 9.0% y/y on the back of: (1) healthy global growth; (2) firm commodity prices; (3) favourable forward-looking business sentiment; and (4) implementation of business-friendly policies i.e. zero GST till the implementation of SST and stable fuel prices. However, the escalating trade war does pose a threat to our base case export projection as there are strong signs of retaliation from the countries affected as well as uncertainty in the US-North Korea meeting.

Australia

Forward indicator points to sustainable growth

The Reserve Bank of Australia (RBA) kept its official cash rate unchanged for the 20th consecutive meeting at a historical low of 1.5%. The decision was little to no surprise to market and our expectations.

Hence, we reiterate our view that the RBA would avert a rate cut policy and expect to keep the policy rate unchanged throughout 2018. We foresee the normalization in the policy rate to come after 2H2019 or early 2020. However, the delay in the normalization is still on cards as the heightened trade war fears may jeopardize the RBA’s effort to achieve a sustainable growth.

• The Reserve Bank of Australia (RBA) kept its official cash rate unchanged for the 20th consecutive meeting at a historical low of 1.5%. The decision was little to no surprise to market and our expectations.

• The reason for the RBA to keep policy rates on hold was that it views the current levels will ensure growth remains sustainable. At the same time, the RBA’s concerns over the weak household consumption, income and debt levels remain elevated while acknowledging the property market has slowed down, especially in Sydney and Melbourne owing to tighter credit standards.

• In our view, the subdued labour market, wage and inflation are expected to pick up in the coming months, underpinned by rising commodity prices, the firm Chinese economy and favourable global growth. Besides, strong government spending and business sentiment are seen to support growth. While the central bank remains confident on inflation reaching its 2% target, it is also cautious over the strength in the Aussie dollar which can undermine growth.

• Hence, we reiterate our view that the RBA would avert a rate cut policy and expect to keep the policy rate unchanged throughout 2018. We foresee the normalization in the policy rate to come after 2H2019 or early 2020. However, the delay in the normalization is still on cards as the heightened trade war fears may jeopardize the RBA’s effort to achieve a sustainable growth.

Source: AmInvest Research - 6 Jun 2018