News

• Gross exports declined by a larger-than-expected magnitude of -3.0% yoy in September (Aug: +1.5% yoy). Consensus was expecting a reading of -2.0% yoy. Imports contracted by -0.1% yoy (Aug: +4.9% yoy).

• Trade surplus moderated but remained high at +RM7.6bn (Aug: +RM8.5bn). Jan-Sep trade surplus was lower at RM59.7bn (Jan-Sep 2015: RM63.2).

• Exports to the US and ASEAN expanded in September (+5.0% yoy, +1.5% yoy respectively; Aug: +5.2% yoy, +3.9% yoy respectively) while exports to EU, Japan and China declined (-8.4% yoy; -11.7% yoy and -1.0% yoy respectively; Aug: +0.5% yoy; -10.7% yoy and -1.3% yoy respectively).

Comments

• The decline in exports was due to the deterioration in manufactured shipments (-2.2% yoy; Aug: +3.6% yoy) and faster pace of contraction in the commodity sector (-5.8% yoy; Aug: -5.0% yoy).

• Manufactured exports reversed to a decline after growing the previous month following slower annual growth in E&E, chemical and optical segment (+0.3% yoy; +4.3% yoy; and +3.7% yoy respectively; Aug: +3.0% yoy; +11.8% yoy; +9.6% yoy) and decline in metal and machinery (-21.6% yoy and -10.1% yoy respectively; -11.1% yoy and +7.4% yoy respectively). E&E exports recorded weaker performance despite the gain in global semiconductor sales (+3.6% yoy; Aug: +0.5% yoy). This is partly explained by stronger ringgit in September 2016 (average USD/MYR: 4.11) compared to the same period in the previous year (USD/MYR: 4.30), offsetting some of the translation gain seen before.

• Exports of commodity-related products declined at a faster pace (-5.8% yoy; Aug: -5.0% yoy) as export volume for crude petroleum and palm oil products reversed to a contraction in September (-15.0% yoy; -12.0% yoy respectively; Aug: +31.3% yoy; +4.2% yoy respectively) while prices for most key commodity prices except for palm oil product continued to decline.

• Intermediate imports continued to grow by +6.2% yoy (Aug: +6.1% yoy), alleviating the concern on sustainability of manufactured export growth. Meanwhile, capital imports declined by -5.6% yoy following high base effect in the previous year.

• Trade surplus amounted to RM18bn in 3Q16 (2Q16: RM17.9bn). 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 absence of translational gain as USD/MYR is expected to remain steady at USD/MYR 4.0-4.20 for the remainder of 2016. We also maintain our 3Q16 GDP growth estimate at 4.2%.

• We expect BNM to leave the OPR at 3.00% in 2016 on expectations of stabilization in 2H 2016 GDP growth. However, should growth fall below expectations (i.e. below 4%), BNM may be inclined to ease monetary policy further.

Source: Hong Leong Investment Bank Research - 7 Nov 2016