- Current account is likely to maintain a surplus in 2015. Current account surplus will persist albeit at a moderate pace, owing to the positive trade balance. Assuming that GDP grows by 5.2% in 2015, we envisage the current account to register 3.8% of GDP in 2015 (vs. 4.6% in 2014). Our full-year GDP is under review pending on the upcoming statistics for 2Q15 tomorrow. Based on our current estimate for 2015, every 0.5ppt downward revision in GDP will reduce the ratio of current account to GDP by 0.2ppt.

- Positive balance of payment in 2Q15. Ahead of tomorrow’s balance of payment statistics, we note that the overall balance had reversed to an inflow totalling RM8.4bil in 2Q15 (which is the quarterly net increase in reserves at BNM). This compares to the outflow of RM15.7bil in 1Q15.

- Ringgit-denominated reserves grew amid forex translation gains. International reserves had improved by RM8.4bil QoQ in 2Q15 (or +2.2% QoQ), partly because of forex translation gains on the weak Ringgit currency. In terms of USD, reserves grew by USD394.1mil QoQ (or +0.4% QoQ). That was prior to the steep deterioration in the reserves during the month of July, which fell by a significant MYR18.8bil MoM (or -4.7% MoM) to RM364.7bil. By end-July, reserves slipped by USD8.8bil MoM (or - 8.3% MoM) to USD96.7bil.

- Merchandise balance had probably softened. Current account and financial account are likely to post improvements in 2Q15 although trade surplus was lower compared to 1Q15. We gather that merchandise balance had probably softened. Trade statistics for 2Q15 posted a marginal decline in trade surplus of RM0.98bil QoQ totalling RM20.4bil (or -4.6% QoQ). Nevertheless, overall current account could have been supported by lower outflows in the other segments including services, as well as primary and secondary incomes.

- Current account surplus of RM10.0bil in 1Q15. As a recap, the surplus in current account of RM10.0bil in 1Q15 was offset by the significant outflow in the financial account. Within the current account, services sector and primary income had recorded outflows of RM3.8bil and RM8.5bil in 1Q15, respectively.

- Strong outflows in reserves and negative balance of payment during 1Q15. Balance of payment had registered an outflow of RM15.7bil in 1Q15 due to the outflow recorded in the financial account and a softer current account surplus. Total reserves at BNM fell to RM389.6bil (or USD105.1bil) as at end-March 2015, owing to the highly volatile forex market. Elsewhere, Foreign Direct Investment (FDI) in Malaysia had improved slightly to RM9.9bil.

- Reduction in the outflows in financial account. Aside from that, the outflows in the financial account had likely reduced during 2Q15, compared to -RM29.7bil in 1Q15. Nonetheless, the outflows in the financial account during 1Q15 were mainly due to the portfolio and other investments which registered outflows of RM7.9bil and RM20.6bil, respectively.

- Weak Ringgit augurs well for exports. Going forward, the weak Ringgit is favourable for Malaysia’s terms of trade, which is supportive of stronger exports. Despite that, exports growth is highly dependent on global demand and improvement in the advanced economies. Mainly, stronger-than-expected economic growth in the US augurs well for global trade including Malaysia’s shipments abroad.

Source: AmeSecurities Research - 12 Aug 2015