News

• Gross exports reversed two months of decline to grow by +7.8% yoy in November (Oct: -8.6% yoy). Market was expecting a reading of +2.5% yoy. Imports rose by +11.2% yoy (Oct: -6.6% yoy).

• Trade surplus narrowed slightly to +RM9.0bn (Oct: +RM9.8bn). Jan-Nov trade surplus was lower at RM78.5bn (Jan-Nov 2015: RM86.3bn).

• Exports to most major countries rebounded in November (US: 9.9% yoy; Oct: -3.5% yoy; EU: +12.3% yoy; Oct: -11.9% yoy; ASEAN: +13.9% yoy; Oct: -2.6% yoy) while exports to China expanded further (+12.1% yoy; Oct: +3.4% yoy).

Comments

• The rebound in export growth was aided by a strong recovery of manufactured exports and slower pace of decline in commodity exports.

• Manufactured exports registered a double-digit growth of 12.1% yoy (Oct: -6.2% yoy) as chemical, machinery and optical rebounded (+15.2% yoy; +8.7% yoy; +12.1% yoy respectively; Oct: -4.7% yoy; -19.8% yoy; -5.1% yoy respectively) while E&E strengthened further to record a growth of +13.2% yoy (Oct: +1.2% yoy). This was reflected by the increase of E&E exports to all major countries, including US, EU and China. In tandem with this development, global chip sales continued to advance by 7.4% yoy in November, registering the fourth consecutive monthly advance on an annual basis.

• Exports of commodity-related products declined at a slower pace (-4.3% yoy; Oct: -16.2% yoy) as export volume for crude petroleum and LNG rebounded (+4.0% yoy & +3.0% yoy respectively ; Oct: -22.0% yoy & -12.0% yoy respectively) while prices for most key commodity prices except for palm oil continued to decline year-on-year basis.

• Intermediate imports also picked-up by +11.4% yoy (Oct: -8.8% yoy), suggesting a reversal to continued expansion in manufactured export growth. Meanwhile, capital imports grew by +12.7% yoy (Oct: -2.3% yoy), driven by broad base increase in all sub-segments.

• The faster gain in imports led to a narrowing of trade surplus to RM9.0bn (Oct: RM9.8bn). After tapering in 2016 (estimate: RM15.0bn; 2015: RM34.7bn), we expect current account (CA) surplus to stabilize at RM15bn in 2017, as the rebound in CPO production and new gas and oil fields lead to higher commodity exports alongside firmer commodity prices. Notwithstanding the positive CA balance, risks remain skewed towards the downside given global structural constraints, low LNG prices and threat of protectionism policies which could hamper global trade.

• We expect BNM to leave the OPR at 3.00% in 2017 on expectations of firmer GDP growth (2017f: +4.5%) and higher inflation (2017f: +2.7%). We see a high probability of SRR cut (-50bps) in early 2017 to increase liquidity in this volatile environment. The upcoming MPC is on 18-19 January.

Source: Hong Leong Investment Bank Research - 9 Jan 2017