Exports surprised on the downside as it declined by -0.3% YoY (July: +9.4% YoY), while imports rose +11.2% YoY (July: +10.3% YoY). The fall in exports stemmed from sharp moderation in manufactured exports and continued decline in commodity exports. Imports grew due to expansion in capital and consumption goods and rebound in intermediate goods. As a result, trade surplus narrowed sharply to RM1.6bn (July: RM8.3bn).

DATA HIGHLIGHTS

Exports registered a decline in August (-0.3% YoY; July: +9.4% YoY), partly due to high base effect. This was below the median estimate of +8.0% YoY. Imports rose by +11.2% YoY (July: +10.3% YoY). Trade surplus recorded the lowest value since November 2014 at RM1.6bn (July: RM8.3bn).

Exports to China moderated sharply (+4.5% YoY; July: +37.5% YoY) while exports to the US, EU, Japan and ASEAN fell. Exports to the US fell by -2.0% YoY (July: +6.7% YoY) and exports to EU dropped -8.9% YoY (July: +2.1% YoY). Exports to ASEAN also declined by -0.7% YoY (July: +1.2% YoY) while exports to Japan decreased at a faster pace of -22.3% YoY (July: -17.1% YoY).

Commodity-related exports declined in August (-5.3% YoY; July: -8.1% YoY). Export volume of palm oil products contracted at a faster pace (-9.9% YoY; July: -5.4% YoY) while export volume of refined petroleum products and LNG declined at a slower pace (-18.4% YoY and -29.6% YoY respectively; July: -29.4% YoY and -37.9% YoY). We expect palm oil exports to increase in the near-term following expectations of increased demand from India due to festive season and 0% export tax rate in September. Meanwhile, export volume of crude petroleum moderated to +17.2% YoY (July: +32.5% YoY). On the other hand, export prices improved in August. Export prices rose for crude petroleum (+45.7% YoY; July: +43.6% YoY), refined petroleum products (+29.1% YoY; July: +24.2% YoY) and LNG (+13.1% YoY; July: +2.7% YoY). Palm oil export price declined faster by -14.5% YoY (July: -8.8% YoY).

Growth of manufactured exports decelerated to +1.2% YoY (July: +15.2% YoY) due mainly to moderation in E&E exports (+3.2% YoY; July: +23.6% YoY), decline in machinery (-7.1% YoY; July: +2.0% YoY) and manufactures of metal exports (-1.8% YoY; July: +23.3% YoY). Nevertheless, demand from the global economy is expected to remain as global semiconductor sales continued its double-digit expansion (+14.9% YoY; July: +17.4% YoY). In addition, Taiwan export orders grew by +7.1% YoY (July: +8.0% YoY), registering the highest level for the year in August. Taiwan’s export orders are seen as a leading indicator for technology exports.

Imports rose +11.2% YoY (July: +10.3% YoY). Capital imports expanded by +25.3% YoY (July: +4.7% YoY) led by lumpy imports of industrial transport equipment (ship, boats). Consumption imports rose +14.2% YoY (July: +11.1% YoY). There was a rebound in intermediate imports by +4.3% YoY (July: -0.1% YoY).

HLIB’s VIEW

Despite the decline in August exports, we continue to expect global growth to remain in expansionary mode. Leading indicators such as August global PMI indicated continued expansion (Aug: 52.5) while Taiwan’s export orders registered an increase. Nevertheless, the risk of escalation of trade war between US and China may lead to financial market volatility and pullback in investment and trade decisions.

Source: Hong Leong Investment Bank Research - 8 Oct 2018