News

• Gross exports declined by a larger-than-expected magnitude of -8.6% yoy in October (Sep: -3.0% yoy). Markets were expecting a reading of -5.6% yoy. Imports contracted by -6.6% yoy (Sep: -0.1% yoy).

• Trade surplus widened to +RM9.8bn in October (Sep: +RM7.6bn). Cumulatively, Jan-Oct trade surplus was lower at RM69.5bn (Jan-Oct 2015: RM76.1bn).

• Exports to most major countries declined in October (US: -3.5% yoy; Sep: +4.9% yoy; Japan: -29.5% yoy; Sep: -11.7% yoy; EU: -11.9% yoy; Sep: -8.4% yoy; ASEAN: -2.6% yoy; Sep: +1.5% yoy) while exports to China rebounded (+3.4% yoy; Sep: -1.0% yoy).

Comments

• The decline in exports on an annual basis was due to high base effect as exports registered the largest volume of shipments in October 2015. On the flip side, exports rose on a monthly basis (+1.7% mom; Sep: +0.7% mom).

• On an annual basis, manufactured exports declined by a larger magnitude (-6.2% yoy; Sep: -2.2% yoy) as chemical and optical reversed to a decline (-4.7% yoy; -5.1% yoy respectively; Sep: +4.3% yoy; +3.6% yoy respectively) while machinery and metal registered a wider contraction (-19.8% yoy; -43.8% yoy respectively; Sep: -12.4% yoy; -21.5% yoy respectively). The manufacturing sector recorded weaker performance despite the gain in global semiconductor sales (+5.1% yoy; Sep: +3.6% yoy). This is partly explained by stronger ringgit in October 2016 (average USD/MYR: 4.17) compared to the same period in the previous year (USD/MYR: 4.26), offsetting some of the translation gain seen before.

• Exports of commodity-related products declined at a faster pace (-16.2% yoy; Sep: -5.8% yoy) as export volume for crude petroleum, LNG and palm oil products registered weaker performance in October (-22.0% yoy; -12.0% yoy; -22% yoy respectively; Sep: -15.0% yoy; +17.0% yoy; -12.0% yoy respectively) while prices for most key commodity prices except for palm oil continued to decline.

• Intermediate imports also reversed to a decline of -8.8% yoy (Sep: +6.4% yoy) while capital imports contracted, albeit by a smaller magnitude of -2.3% yoy (Sep: -6.2% yoy) following high base effect in the previous year.

• The monthly gain in exports has led to a widening of trade surplus to RM9.8bn (Sep: RM7.6bn). Our 2016 CA forecast stands at RM15.0bn (1-3Q: RM12.9bn). Notwithstanding the positive CA balance, risks remain skewed towards the downside given weak global demand, low LNG prices and lower translational gain as USD/MYR is expected to trade at range bound of USD/MYR 4.20- 4.50 for the remainder the year (avg. Nov-Dec 2015 : USD/MYR 4.29)

• We expect BNM to leave the OPR at 3.00% in 2017 on expectations of stronger growth in 2017. However, should growth fall below expectations, BNM may be inclined to ease monetary policy further.

Source: Hong Leong Investment Bank Research - 8 Dec 2016