Exports fell at a steady pace of -6.7% YoY in October (Sep: -6.7% YoY), better than market expectations of a -12.3% YoY drop. Imports also posted a decline of -8.7% YoY (Sep: +2.4% YoY). The contraction in exports was mainly due to high base effect, while imports fell across the board. Trade surplus widened to RM17.3bn (Sep: RM8.4bn).

DATA HIGHLIGHTS

Exports posted a steady decline in October (-6.7% YoY; Sep: -6.7% YoY) due to high base effect. Meanwhile, imports contracted by -8.7% YoY (Sep: +2.4% YoY). On a monthly basis, exports and imports rebounded by +16.6% (Sep: -4.5%) and +5.6% (Sep: -1.6%) respectively. Consequently, the trade surplus widened to RM17.3bn (Sep: RM8.4bn).

Exports to Japan (-20.1% YoY; Sep: -1.7% YoY) declined at a faster pace on account of lower E&E and LNG exports while exports to China (-11.0% YoY; Sep: -3.0% YoY) fell on lower E&E, petroleum and chemical product exports. The contraction in exports to EU (-5.2% YoY; Sep: -10.8% YoY) and ASEAN (-2.8% YoY; Sep: -8.6% YoY) softened, while exports to US slowed to +2.7% YoY (Sep: +6.6% YoY).

The fall in commodity-related exports steepened to -24.7% YoY (Sep: -13.9% YoY), mainly driven by lower crude petroleum (-50.5% YoY; Sep: -45.8% YoY), refined petroleum products (-28.4% YoY; Sep: -13.1% YoY) and LNG (-17.1% YoY; Sep: - 1.9% YoY) exports. The decline in crude petroleum exports was attributed to lower volume (-40.9% YoY; Sep: -38.1% YoY) and average unit value (AUV) (-16.3% YoY; Sep: -12.4% YoY). Similarly, refined petroleum products fell on lower volume (-13.0% YoY; Sep: -15.4% YoY) and AUV (-16.3% YoY; Sep: -2.0% YoY). Meanwhile, LNG exports mainly fell due to lower AUV (-16.8% YoY; Sep: -10.4% YoY).

Manufactured exports declined at a slower pace (-1.2% YoY; Sep: -4.8% YoY), as the acceleration in optical exports (+17.6% YoY; Sep: +12.8% YoY) was offset by sharper decline in metal (-20.0% YoY; Sep: +4.8% YoY) and chemical exports (-12.7% YoY; Sep: -11.5% YoY), as well as continued deterioration in E&E (-3.2% YoY; Sep: - 12.2% YoY) and moderation in machinery exports (+3.6% YoY; Sep: +6.8% YoY).

Imports posted a -8.7% YoY drop during the month (Sep: +2.4% YoY) as imports fell across the board. The decline in capital (-11.5% YoY; Sep: +7.1% YoY) and intermediate imports (-5.1% YoY; Sep: +11.1% YoY) were mainly due to lower imports of parts of electrical machinery and equipment. Meanwhile, consumption imports (-5.0% YoY; Sep: +15.1% YoY) contracted on the back of lower imports of non-durables particularly pharmaceutical products.

On a month-on-month basis, the rise in exports (+16.6% MoM; Sep: -4.5% MoM) was more expansionary than the increase in imports (+5.6% MoM; Sep: -1.6% MoM), leading trade surplus to widen to RM17.3bn (Sep: RM8.4bn). On year-to-date basis, trade balance was higher than the same period in 2018 (RM118.2bn; RM102.5bn).

HLIB’s VIEW

The WTO Trade Outlook Indicator for 4Q19 improved to 96.6 (3Q19: 95.7) but remained below the baseline value of 100, suggesting world trade volume is likely to remain below trend with weak momentum. Going into 2020, we opine that downside risks to trade will continue to persist as it is unlikely for both US and China to reach a deal that includes a removal of all tariffs. Consequently, we maintain our forecast for BNM to reduce the OPR by 25bps by 1H 2020.

Source: Hong Leong Investment Bank Research - 5 Dec 2019