· Current account slows in 3Q15. Malaysia’s overall current account narrowed to RM5.1bil (or accounting for 1.7% of GDP) in 3Q15. That compares to RM7.6bil (or 2.7% of GDP) in 2Q15. The current account fell by RM2.5bil QoQ despite a stronger trade surplus. Malaysia had registered higher outflows in both the services account and primary income. We gather that trade balance has improved by RM1.9bil QoQ (or +9.1% QoQ).

· Current account to maintain a surplus due to positive net trades. Current account has dwindled significantly. Nonetheless, we expect current account to maintain a surplus in 2015, albeit at a slower pace. YTD 3Q15, current account registered at 2.7% of GDP, compared to full-year 2014 when it registered a surplus of 4.3%. For 3Q15, nominal exports expanded by 5.5%, imports grew by 2.9% and trade balance had registered a healthier surplus of RM22.2bil. These compare to exports /imports /trade balance of -3.7% /-5.2% /RM20.4bil in 2Q15.

· Balance of payment registers inflow of RM17.0bil. All in, balance of payment registered a sizable inflow in 3Q15 driven mainly by the net errors and omissions. Note that other investments reversed to an outflow of RM6.4bil vs. an inflow of RM18.4bil in 2Q15. Also, direct investments (-RM297mil) and portfolio investments (-RM24.4bil) remained weak. As for FDI, Malaysia recorded a lower net inflow of RM4.7bil (2Q15: RM12.5bil). Other than that, Direct Investment Abroad (DIA) recorded a lower net outflow of RM5.0bil (2Q15: -RM16.4bil).

· Ringgit-denominated reserves improved further in 3Q15. The international reserves stood at RM415.1bil as at end- September 2015 (or +RM17.0bil QoQ). Overall reserves level had dwindled during 1Q15 before picking-up pace during 2Q15 and 3Q15. The improvements in 2Q15 and 3Q15 are mainly attributable to the highly volatile forex market and Ringgit translation gains. That said, a sustainable improvement in the reserves will rely extensively on the inflows of foreign funds and healthy net trades.

· Weak Ringgit augurs well for exports. Exports had posted healthy growth during the recent months, driven in part by the weak Ringgit and improvement in global demand. Overseas shipment expanded by 8.8% YoY to RM70.2bil in September (August: +4.1% YoY). In part, the weak Ringgit currency remained supportive of exports growth during the month. Ringgit fell further to an average of 4.31 per USD in September vs. 4.06 in August.

· Growth in the US augurs well for global trade. Improvement in the US will bolster global demand including Malaysia’s shipments abroad. In September, shipments to the US rose 16.5% to RM6.61bil, driven by demand from the electronics industry. The increase was due mainly to higher exports of photosensitive semiconductor devices, rubber gloves, wooden bedroom furniture, machinery, appliances and parts as well as manufactures of plastics.

Source: AmeSecurities Research - 16 Nov 2015