News

• Export growth unexpectedly declined by -0.9% yoy in May (Apr: +1.6% yoy). Imports rebounded to +3.1% after declining for two consecutive months. The export reading came in below market estimate of +2.0% yoy.

• Trade surplus narrowed further to RM3.3bn (Apr: +RM9.1bn). However, Jan-May trade surplus was higher at RM36.3bn (Jan-May 2015: RM33.7bn).

• Exports to US and ASEAN continued to expand (+18.7% yoy & +0.5% yoy respectively; Apr: +11.7% yoy & +7.2% yoy respectively). Exports to the EU reverted to a marginal growth of +0.9% after recording a contraction in the previous month. Meanwhile, exports to Japan and China declined, albeit at a slower pace (-7.3% yoy & -12.2% yoy respectively; Apr: -18.7% yoy & -16.6% yoy respectively).

Comments

• The contraction in export was due to decline in commodity exports (-17.5% yoy; Apr: -0.4% yoy) amid higher manufactured shipments (+4.9% yoy; Apr: +2.2% yoy).

• Manufactured export improved slightly following an increase in E&E export (+3.2% yoy; Mar: +2.1 yoy) and chemical products (+11.8% yoy; Apr: 2.5% yoy). Optical products continued to chart double-digit growth due to lower base effect from a year ago. Machinery products grew at a slower pace of +7.3% yoy after fourteen consecutive months of double-digit expansion.

• Exports of commodity-related products declined significantly (-17.5% yoy; Apr: -0.4% yoy) due to weaker export volume (EV) that offset the improvement in most major commodity prices. For example, crude petroleum EV recorded –23.3% yoy, a reversal from +0.6% yoy in April. Meanwhile, export price of crude petroleum registered a slower pace of decline (-22.2% yoy; Apr: -26.2% yoy). This was also seen in LNG products as EV decreased by -0.5% yoy (Apr: +3.4% yoy) amid slower pace of contraction in prices (-28.9% yoy; Apr: -34.7% yoy).

• Intermediate imports declined at a slower pace of -0.2% yoy (Apr: -6.8% yoy), pointing to still weak manufacturing prospects. This is consistent with subdued global chip sales (-6.2%). Meanwhile, capital imports rose strongly at +17.2% yoy (Apr: flat).

• The marginal contraction in exports and rebound in imports have led to a narrowing of trade surplus to RM3.3bn. Our estimation shows that Malaysia needs an average monthly trade surplus of circa RM3-4bn to achieve a balanced position in current account. The external sector may pose renewed downside risk as post-Brexit developments could lead to lower global trade growth. We had already factored in a narrower surplus in 2H16 given higher capital imports amid sluggish export performance. Maintain our current account forecast at RM10bn for 2016 (1Q16: RM5bn).

• Notwithstanding the weak external sector, we opine that growth will be supported by income measures and infrastructure projects in 2H2016. We maintain our 2016 full year GDP growth forecast at 4.2% and expect BNM to stand pat at 3.25% in 2016.

Source: Hong Leong Investment Bank Research - 4 Jul 2016