News

• Export growth unexpectedly rebounded in August by +1.5% yoy (Jul: -5.5% yoy), above market expectations of -2.3% yoy. Imports rose by +4.9% yoy (Jul: -4.8% yoy).

• Trade surplus widened to +RM8.5bn (Jul: +RM1.9bn). Jan Aug trade surplus was slightly lower at RM52.2bn (Jan-Aug 2015: RM54.2).

• Exports to the US, EU and ASEAN expanded in August (+5.2% yoy, +0.5% yoy, +4.0% yoy respectively; Jul: +4.1% yoy, -1.9% yoy, +4.7% yoy respectively) while exports to Japan and China declined, albeit at a slower pace (-11.8% yoy; -1.3% yoy respectively ; Jul: -14.5% yoy; -22.4% yoy)

Comments

• The recovery in exports was due to the improvement in manufactured shipments (+3.6% yoy; Jul: -5.0% yoy) amid a slower pace of decline in the commodity exports (-5.0% yoy; Jul: -6.3% yoy).

• Manufactured exports grew after declining the previous month, in tandem with a rebound in E&E and machinery exports (+3.0% yoy & +7.4% yoy respectively; Jul: -6.0% yoy & -2.0% yoy respectively). Export growth was also aided by continued expansion in optical products (+9.6% yoy; Jul: +10.9% yoy) and chemical sector (+11.8% yoy; Jul: flat). The improvement in manufactured exports reflected higher global demand, consistent with the rise in global chip sales (+0.5% yoy; Jul: -2.8% yoy).

• Exports of commodity-related products declined at a slower pace (-5.0% yoy; Jul: -6.3% yoy) as major commodity prices (except for LNG) registered an improvement on an annual basis. In addition, export volume (EV) of most major commodity products expanded, with the exception of LNG. Export price of crude petroleum registered a slower pace of deterioration (-13.2% yoy; Jul: -25.7% yoy) while EV continued to increase by +31.3% yoy (Jul: +46.4% yoy). However, LNG price declined at a faster pace of -29.2% yoy (Jul: -27.0% yoy) as EV reverted to a decline of -11.5% yoy, after expanded marginally in the past two months.

• Intermediate imports grew by +6.1% yoy (Jul: -11.8% yoy), consistent with E&E exports performance (+3.0% yoy; Jul: -6.0% yoy). Meanwhile, capital imports normalized to a growth of +9.0% yoy after recording strong gains in the previous month (+46.6% yoy).

• Notwithstanding a relief recovery in August trade surplus, we maintain our 2016 CA forecast of RM10bn (1H16: RM6.9bn) as risks remain skewed to the downside given weak global demand, low LNG prices and diminishing translational gain as USD/MYR is expected to remain steady at USD/MYR 4.0-4.20 for the remainder of 2016.

• We maintain our 2016 full year GDP growth forecast at 4.2%, on expectations of income measures and infrastructure projects to support growth in 2H 2016. Consequently, we expect BNM to hold the OPR unchanged in Nov MPC meeting, despite a risk of BNM reducing policy rate should external sector weigh heavily on Malaysia’s overall growth prospects.

Source: Hong Leong Investment Bank Research- 10 Oct 2016