News

• Export growth softened to 3.5% yoy in July (Jun: +5.0% yoy), higher than market estimate of a 3.2% gain and outperforming regional peers. Import growth bounced back to +5.9% yoy (Jun: -1.5%) after falling for three months.
• Trade surplus hit a 9-month low of RM2.4bn (Jun: +RM8bn), fanning concerns about slippage of CA surplus.
• Almost all major destinations inked positive growth, except ASEAN (-2.6%; Jun: +6.4%). Higher exports to the US (+20.2%; Jun: +9.5%) and Japan (+4.4%; Jun: -25.1%) offset slower shipment growth to China (+32.7%; Jun: +49.3%) and the EU (+3.9%; Jun: +15.6%).

Comments

• The slight moderation in July export growth was due to: (i) sluggish demand from Asia and EU; (ii) low commodity prices which more than offset higher export volume (EV); and (iii) slowdown in E&E sector. These weaknesses have partially erased the decent currency translation gains in manufactured products (i.e. machinery & chemicals).
• Growth in commodity-related exports continued to head south, falling by 20.3% yoy (Jun: -16.0% yoy). The lethargy was largely pulled down by sinking average unit price (AUP) amid improvement in EV for most products. Refined petroleum products recorded the hardest hit in both AUP (-28.5%) and EV (-28.2%), while the rest (crude oil, LNG & CPO) were only affected by tumbling AUP.
• E&E exports continued its robust growth, albeit at a more moderate pace (+12.1% yoy; Jun: +13.5% yoy). Exports of manufactured goods-ex E&E products grew by 15.7% yoy (Jun: +14.5% yoy), chiefly thanks to faltering MYR that aided exports of machinery (+23.4%; Jun: +12.3%) and chemical products (+19.9%; Jun: +15.1%).
• Strong growth rebound in overall imports was lifted by all segments. Imports of intermediate goods returned to a positive growth of 5.7% (Jun: -2.4%) due to higher imports of electronics and petroleum. Imports of capital goods also rebounded mildly (+3.2%; Jun: -16.5%) after three consecutive months of contraction. Imports of consumption goods remained robust (+25.7%; Jun: +36.8%) driven mainly by importation of pharmaceutical items.
• Narrower trade surplus in July denotes a slimmer CA surplus in 3Q, in line with our expectations as (i) commodity prices reverted to record low in August; and (ii) global demand turns softer in 3Q. That said, we believe our 2015 CA surplus of RM28bn remain attainable given 1H surplus (RM17.6bn) already hit ~63% of our full-year target.
• In the face of further slowdown in top trading partners and lackluster commodity prices, Malaysia’s export outlook continues to remain dim, reducing its boosts to GDP growth in 2H. This, along with weak monetary conditions in July, implies a weaker GDP growth in 3Q before recovering gradually in 4Q. We keep our 5.0% GDP growth for 2015.
• Despite looming external uncertainties, domestic growth outlook remains resilient while inflation remains tame. Risk of financial imbalance is also contained. Thus, we maintain our view that BNM will hold OPR steady until year end.

Source: Hong Leong Investment Bank Research - 7 Sep 2015