News

• July export growth unexpectedly declined by -5.3% yoy (Jun: +3.4% yoy), below market expectations of +1.9% yoy. Imports contracted by -4.8% yoy (Jun: +8.3% yoy).

• Trade surplus narrowed to +RM1.9bn (Jun: +RM5.5bn). Jan-Jul trade surplus remained steady at RM43.7bn (Jan- Jul 2015: RM44.1bn).

• Exports to the US and ASEAN expanded at a slower pace (+4.1% yoy & +4.7% yoy respectively; Jun: +22.0% yoy & +8.5% yoy respectively). Exports to Japan and EU reverted to a contraction of -14.5% yoy and -1.9% yoy respectively (Jun: +2.4% yoy & +4.2% yoy respectively). Meanwhile, exports to China declined at a faster pace (-22.4% yoy; Jun: -20.3% yoy).

Comments

• The decline in exports was due to the deterioration in shipments of manufactured goods (-5.0% yoy; Jun: +6.7% yoy) amid a slower pace of contraction in the commodity sector (-6.3% yoy; Jun: -7.0% yoy).

• Manufactured exports contracted due to renewed weakness in E&E export performance (-6.0% yoy; Jun: +4.9% yoy), machinery sector (-2.0% yoy; Jun: +6.7% yoy) and flat growth in chemical products (Jun: +7.1% yoy). The moderation in manufactured segment was due to weaker global demand and lower currency translational gains.

• Exports of commodity-related products declined (-6.3% yoy; Jun: -7.0% yoy) as the improvement in export volume (EV) was offset by continued decline in most commodity prices on YoY basis. For example, export price of crude petroleum registered a larger pace of decline (-25.7% yoy; Jun: -17.0% yoy) while crude petroleum EV increased by +46.4% yoy (Jun: +11.7%). However, LNG prices declined at a slower pace of -27.0% yoy (Jun: -30.2% yoy) as EV rose marginally for the second consecutive month by +2.7% yoy (Jun: +1.4% yoy).

• Intermediate imports reversed to a contraction of -11.8% yoy (Jun: +5.7% yoy), in tandem with E&E export performance (-6.0% yoy; Jun: +4.9% yoy). Meanwhile, capital imports recorded a double-digit growth for the third consecutive month in July (+46.6% yoy; Jun: +12.8% yoy) following larger imports of machinery & transport equipment.

• The contraction in exports has led to a narrowing of trade surplus to RM1.9bn. This is in line with our expectations as we continue to expect narrower surpluses in 2H16 given weak global demand, still low LNG prices and diminishing ringgit translation gain (ringgit no longer depreciating YoY basis). Maintain our current account forecast at RM10bn for 2016 (1H16: RM6.9bn).

• We maintain our 2016 full year GDP growth forecast at 4.2%, as income measures and infrastructure projects are expected to support growth in 2H 2016. However, there is a risk that the weak external sector could weigh on Malaysia’s overall GDP prospects , leading to a potential monetary policy easing (baseline: OPR to remain unchanged).

Source: Hong Leong Investment Bank Research - 8 Sep 2016