News

Malaysia’s gross export growth slowed to 7.9% yoy in June (May: +16.2% yoy), disappointing the market which had expected for a 15.0% yoy gain. Growth of gross imports also moderated to 9.2% yoy (May: +11.8% yoy), mainly pulled down by lower imports of intermediate goods (+2.7% yoy; May: +10.4% yoy).

Trade surplus narrowed further to RM4.0bn (May: RM5.6bn), marking the lowest level since Aug-13. Average monthly trade surplus for 2013 was RM5.9bn.

All major export destinations recorded weak export growth in June, led mainly by Japan (-2.6% yoy; May: +11.4% yoy) and China (-1.9% yoy; May: -0.4% yoy). Shipments to the US, EU and ASEAN slowed to +9.5% yoy, +3.9% yoy and +9.6% yoy respectively (May: +13.8% yoy, +23.4% yoy and +14.7% yoy respectively).

Comments

The lower-than-expected export performance in Jun was largely attributed to weaker exports of E&E, palm oil and petroleum products.

Growth of E&E exports slipped to 5.5% yoy (May: +12.4% yoy), the weakest expansion rate since Oct-13. The moderation in E&E export performance was in line with our expectation that its growth rate will taper in 2H 2014.

Palm oil export growth decelerated to 4.2% yoy (May: +19.9% yoy), reflecting mainly slower volume growth in June amid marginally higher CPO export price compared to a year ago (RM2,447/tonne; Jun-13: RM2,389/tonne).

O&G exports remained supportive of overall export growth, albeit rising at a more moderate pace. Shipments of crude oil increased by 24.5% yoy (May: +73.4% yoy) while that of LNG rose 11.2% yoy (May: +17.3% yoy). Meanwhile, exports of petroleum products slowed to +8.3% yoy (May: +50.0% yoy).

Trade surplus tapered to RM18.4bn in 2Q14 (1Q14: RM26.3bn), implying a smaller current account surplus for the quarter. Looking ahead, trade surplus is expected to remain low affected by (i) lower-than-expected CPO export price (a decline of RM100/tonne in CPO export price will shave RM2.6bn from annual trade surplus), and (ii) potential surge in capital imports as Rapid project gathers pace in 2H14.

Net trade continued to contribute positively to GDP growth in 2Q14, judging from higher export growth in 2Q14 (+14.2%; 1Q14: +10.8% yoy) relative to import growth (+8.6% yoy; 1Q14: +5.5% yoy). Moreover, capital imports turned around to grow by 9.2% yoy in 2Q14 (1Q14: -6.6% yoy), signaling stronger investment spending momentum in 2Q14. While waiting for June IPI for a fine-tune in our GDP estimate, we maintain our 2014 GDP growth forecast at 5.5%.

On policy rate, we believe BNM is likely to stay pat in the Sep MPC meeting unless 2Q economic growth surprises on the upside while strong financial data warrants an immediate action to bring OPR to the neutral level (3.5%).

Source: Hong Leong Investment Bank Research - 7 Aug 2014