- Exports surge in June following two months of contraction. Overseas shipment rebounded in June to register an expansion of 5.0% YoY to RM64.3bil (May: -6.7% YoY). In part, the weak Ringgit currency spurred exports growth during the month. Ringgit fell to an average of 3.74 per USD in June vs. 3.60 in May. Exports growth were driven by most export products except the exports of petroleum including crude petroleum (-34.1% YoY), LNG (-45.2%), and Petroleum Products (-9.6%). Primarily, the exports of E&E surged by 13.5% following two months of contractions.

- Strong exports to China. In terms of export markets, overseas shipments to China improved tremendously to +49.3%, from +5.7% in the preceding month. As for the US and Singapore, exports had reversed from contraction to register positive growth rates of 9.5% and 3.8%, respectively. Nevertheless, demand from Japan (-25.1%), Indonesia (-7.6%), Taiwan (-8.0%) and Australia (-29.9%) remained weak in June.

- Imports contract at a narrower pace. As for the imports segment, the improvement was driven by the strong growth for consumption goods. Total imports contracted at a slower pace of 1.5% to RM56.3bil in June (May: -7.2%). Consumption imports rose by a healthy 36.8%. However, the contraction for imports was largely attributable to the fall in capital (-16.5%) and intermediate goods (-2.4%). Note that intermediate goods accounted for 58.2% of total imports.

- Net trades advanced by 10.1% YoY in 2Q15. Total trade increased by 1.9% YoY to RM120.5bil in June (May: -6.9% YoY). Also, trade balance had registered a healthier surplus of RM8bil in June, compared to RM5.5bil in May. As for 2Q15, despite the contraction in both exports (-3.7% YoY) and imports (-5.2%), overall trade surplus gathered momentum from a year ago. Net trades had advanced by 10.1% YoY to RM20.4bil. That compares to RM21.3bil in surplus (or -18.9% YoY) in 1Q15.

- Balance of payment improves despite the narrower trade surplus in 2Q15. Current account and financial account are likely to post improvements during 2Q15 despite slower trade surplus compared to 1Q15. Based on current statistical releases, the balance of payment statistics for 2Q15, which will be released on 13 August, will post an increase of RM8.4bil. Mainly, the international reserves at BNM grew by the same quantum in 2Q15 (or +USD394mil). We gather that trade balance had softened by RM0.98bil QoQ (or -4.6% QoQ). As such, the outflows in other segments of current account or financial account had likely reduced during 2Q15.

- Current account will continue to maintain a surplus in 2015. We envisage current account to register 3.8% of GDP in 2015 (vs. 4.6% in 2014). Meanwhile, exports performance in 3Q15 is likely to be supported by the weak Ringgit currency. The weak Ringgit sets a platform for preferential terms of trade which is positive for exports going forward. Aside from that, exports growth is highly dependent on global demand and improvement in the advanced economies. As such, stronger-than-expected growth in the US will be a catalyst for better exports for Malaysia in 2H15.

Source: AmeSecurities Research - 6 Aug 2015