• Economic openings dampened transport sub-account however

• Strong exports lifted the CA-to-GNI condition

• CA-to-GNI could have been much higher if not for the steady rise in the  denominator

• Portfolio investment form improved markedly

• CA-to-GNI condition improved YoY and QoQ

Overview

Malaysia’s balance of payment (BOP) position improved on a YoY and QoQ basis, which could have been much higher if not for the turnaround in imports  and widening outflows in other investment sub-account. This pushed current  account-to-GNI to reach 3.7% in 3Q22, significantly better against 2Q22 of  1.2% and 2Q21 of 3.5% respectively. The inspiring form could persist in the  near term given steady exports and favourable capital markets performance particularly the encouraging capital inflow in equity market. This will also be  added by a feel-good-factor following the expectation of a strong government  post 15th General Elections (15th GE) and hence, foreign institutions interest in  Malaysia’s financial markets including the Ringgit.

The 3Q22 current account position (RM14.1bn; 3Q21: RM18.2bn) was  supported by a steady increase in trade surplus and therefore, the goods sub-account (3Q22: RM33.3bn; 3Q21: RM26.1bn) thanks to impressive exports  momentum by key products such as crude petroleum (3Q22: +85.3%), natural  gas (3Q22: +98.8% YoY), palm oil and palm oil-based products (3Q22: +26.8%  YoY), electrical & electronics – E&E (3Q22: +41.1%) and natural rubber (3Q22:  +5.1%). This could have been much higher however if not for the turnaround  in imports (3Q22: +47.3%) particularly intermediate (3Q22: +41.1% YoY) and  consumption goods (3Q22: +34.8% YoY).

This was added by smaller deficit in services account (3Q22: -RM9.6bn; 3Q21:  -RM15.2bn) underpinned by improvement by manufacturing services on  physical input owned by others (3Q22: RM4.3bn; 3Q21: RM3.4bn) and travel  (3Q22: RM849mn; 3Q21: -RM3.7bn) sub-accounts thanks to full economic  openings and border reopening since April. This was dampened however by  persistent deficits in the transport (3Q22: -RM7.9bn; 3Q21: -RM7.9bn), insurance and pension services (3Q22: -RM2.7bn; 3Q21: -RM2.0bn) and  charges for the use of intellectual property (3Q22: -RM2.4bn; 3Q21: - RM2.4bn) sub-accounts, consistent with full economic re-openings and hence,  the secure of external services.

Financial account position deteriorated (3Q22: -RM14.8bn; 3Q21: - RM0.2mn), no thanks to the sharp drop in other investment (3Q22: - RM16.5bn; 3Q21: -RM5.1bn). Financial account position could have been  much better however if not for the pullback in direct investment sub-account  which slipped (3Q22: RM1.9bn; 3Q21: RM7.9bn), no thanks to the sharp  interest rate movement in advanced economies (AEs). Larger deficits in  financial account hurt the Ringgit, pushing it to drop by 10.7% YoY to  RM4.6375 per Dollar in 3Q22.

Source: BIMB Securities Research - 11 Nov 2022