-  The Industrial Production Index (IPI) for Malaysia advanced by 3.3% YoY in June 2013 which was broadly in line with both ours and consensus estimates of +3.5% and +3.7% respectively. The IPI in May 2013 had been revised downwards by 0.1pp to +3.3%. The annual IPI growth in May was contributed by all three divisions including Manufacturing (+1.5% YoY), Mining (8.1%) and Electricity (6.0%).

-  In the manufacturing segment, the production of E&E posted a decline of 1.4% in June (May: +0.7% YoY). Based on the latest available data of the exports oriented industries of IPI, we note that the production of E&E for the purpose of exports had moderated to 0.9% YoY in May from +4.8% in the preceding month.

-  Overall, output continues to grow despite weaknesses in the export segment. Owing to firm domestic demand, IPI growth has been mostly domestically driven during the month of May. May’s industrial production in terms of exports oriented and domestic oriented segments have posted growth of 2.4% and 5.2% YoY respectively.

-  Despite the negative exports data for five straight months through to June, we do envisage an improvement inexport sales as soon as global demand gathers pace. The export driven industries have been showing output growth for the past two months in April and May as these industries are probably gearing up for the potential rebound in demand. Domestically though, demand remains intact and we do foresee continued expansion going forward.

-  A separate report last Wednesday showed that Malaysia’s total sales value of the manufacturing sub-division declined

for the fifth consecutive month in June. Overall sales fell by 2.2% YoY to RM51.6bn in June (May: -2.5%). The decrease in sales value was attributed to lower sales in 57 of 116 industries (59.1%) surveyed. Particularly, the contraction in sales was driven by the Manufacture of Semi-Conductor Devices (-15.4% YoY); Manufacture of Basic Iron and Steel Products (-16.6%); and Rubber Remilling and Latex Processing (-31.9%).

-  All in all, we expect the rebound in advanced countries to bode well for growth within Asia. Mainly, the sooner-thanexpected recovery in the US and the relatively weaker regional currencies vis-à-vis USD will be a boost for future exports growth. As such, we do anticipate an improvement for the local manufacturing division due to the renewed optimism of a rebound in global demand going forth.

-  Recent report by the Semiconductor Industry Association (SIA) showed that global sales for June 2013 rose by 2.1% YoY (or +0.8% MoM) to USD24.88bil. Mainly, the US had posted strong sales growth of 10.6% YoY (or +3.5% MoM) to USD4.76bil in June.

-  Elsewhere, the global manufacturing data suggests that the manufacturing segment is gaining traction. Latest data based on JP Morgan’s survey showed that the manufacturing sector had rebounded to 50.8 points in July owing to improvements in the US, China, Europe and Singapore (June: 50.6).

-  US economy is gathering pace as itsISM manufacturing index shot up to a healthy 55.4 in July (June: 50.9 points). We do foresee an impetus for a sustainable rebound in the US owing to the improved employment market. Note that the US unemployment rate had moderated to 7.4% and total nonfarm payroll employment increased by 162,000 in July.

-  Meanwhile, Japan’s manufacturing segment had deteriorated owing to the sharp fall in production and recessionary risk ahead if sales tax is raised to 8% in April next year. Japan’s Manufacturing PMI slipped to 50.7 points in July vs. 52.3 points in the previous month.

Source: AmeSecurities