News

• Gross exports expanded by a larger-than-expected magnitude of +10.7% yoy in December (Nov: +7.8% yoy) above consensus forecast of +9.6% yoy. Imports rose by +11.5% yoy (Nov: +11.2% yoy).

• Trade surplus narrowed slightly to +RM8.7bn (Nov: +RM9.0bn). Jan-Dec 2016 trade surplus was lower at RM87.3bn (Jan-Dec 2015: RM94.6bn).

• Exports to China grew strongly (+22.3% yoy; Nov: +12.1%), while export to other countries expanded, albeit at a slower pace (US: +1.7% yoy; Nov: +10.0% yoy; EU: +5.6; Nov: +12.3% yoy; ASEAN: +7.9% yoy; Nov: +13.9% yoy) while exports to Japan declined at a faster pace (-7.4% yoy; Nov: -1.6% yoy).

Comments

• The acceleration in export growth benefited from the strong recovery in commodity exports and expansion of manufactured exports.

• Exports of commodity-related products turned around to register a strong improvement of +22.7% yoy (Nov: -4.3% yoy) due to recovery in commodity prices and export volume. Of significance, crude petroleum prices grew by +14.0% yoy, the first annual increase after 28 consecutive months of contraction. Similarly, refined petroleum product prices recorded its first increase of +1.0% yoy (Nov: -17% yoy). In addition, while LNG prices dipped, it contracted at a smaller pace of -12.0% yoy (Nov: -25.0% yoy). Export volume of crude petroleum, petroleum products and LNG also grew at a faster pace. However, exports of palm oil products declined at a faster pace due to seasonal factors (-11.0% yoy; Nov: -3.0% yoy).

• Manufactured exports registered a slower pace of growth (+7.2% yoy; Nov: 12.1% yoy) as shipments of E&E, chemical and optical moderated (+9.0% yoy; +19.7% yoy; +2.9% yoy respectively; Nov: +13.2% yoy; +15.2% yoy; +12.1% yoy respectively). In tandem with this, global chip sales reached US$31bn, unchanged from the previous month but registered an annual growth of +12.3% yoy; Nov: +7.4% yoy).

• Intermediate import growth moderated to +9.6% yoy (Nov: +11.4% yoy), suggesting moderate expansion in manufactured export growth. Meanwhile, capital imports continued to grow by +11.6% yoy (Nov: +12.7% yoy).

• The faster gain in imports only led to a slight narrowing of trade surplus to RM8.7bn (Nov: RM9.0bn), pointing to an upside risk to our 2016 current account (CA) estimate of RM15.0bn (1-3Q: RM12.9bn). After tapering in 2016, we expect CA 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, subdued 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 stronger growth and higher inflation.

Source: Hong Leong Investment Bank Research - 10 Feb 2017