DATA HIGHLIGHTS

Malaysia posted its fourth consecutive month of decline in exports in November (- 5.5% YoY; Oct: -6.7% YoY), which came in below market expectations of flat growth. Meanwhile, imports also contracted at a slower pace (-3.6% YoY; Oct: -8.7% YoY). Consequently, the trade surplus narrowed to RM6.5bn (Oct: RM17.3bn).

The decline in exports to ASEAN steepened (-8.8% YoY; Oct: -2.8% YoY) mainly on account of lower exports of E&E, crude petroleum and petroleum products. The contraction in exports to EU (-4.3% YoY; Oct: -5.2% YoY) and Japan (-16.0% YoY; Oct: -20.1% YoY) softened, while exports to China (+4.1% YoY; Oct: -11.0% YoY) rebounded, mainly driven by iron and steel products, optical and scientific equipment and palm oil products. Similarly, exports to US rose (+6.5% YoY; Oct: +2.7% YoY) on account of wood products, optical equipment and E&E products.

Commodity-related exports contracted, albeit at a slower pace (-18.1% YoY; Oct: - 24.7% YoY). The more measured pace of contraction was due to smaller decrease in palm oil (-3.5% YoY; Oct: -9.5% YoY) and crude petroleum (-23.4% YoY; Oct: -50.5% YoY) that offset the larger drop in LNG exports (-35.9% YoY; Oct: -17.1% YoY). The decline in LNG exports was attributed to lower export volume (-16.6% YoY; Oct: +7.1% YoY) and average unit value (-15.5% YoY; Oct: -16.8% YoY).

Manufactured exports declined (-1.4% YoY; Oct: -1.2% YoY), largely due to the sharper drop in E&E exports (-11.6% YoY; Oct: -3.2% YoY) which offset the pickup in machinery exports (+6.2% YoY; Oct: +3.5% YoY). Imports recorded a softer decline of -3.6% YoY (Oct: -8.7% YoY). The rebound in intermediate (+1.8% YoY; Oct: -5.1% YoY) and consumption imports (+1.9% YoY; Oct: -5.0% YoY) was offset by lower capital imports during the month (-4.3% YoY; Oct: -11.5% YoY). Intermediate imports were driven by higher imports of electrical machinery and equipment parts, while consumption imports rose on account of higher primary food and beverages. Capital imports mainly fell due to lower transport equipment imports, particularly aircraft and parts.

November’s trade surplus of RM6.5bn was the lowest since August 2018 (RM1.4bn). Nevertheless, on a year-to-date basis, trade balance was higher than the same period in 2018 (RM124.7bn; Jan-Nov 2018: RM112.8bn). This was also the largest trade surplus for the period of Jan-Nov recorded since 2009.

HLIB’s VIEW

While there are some optimistic signs of cooling US-China trade tensions, we remain cautious and opine that downside risks will continue to persist. Despite the reduction of tariff rate from 15% to 7.5% on USD120bn of Chinese goods, 2/3rd of Chinese goods remain affected with tariff measures. In addition, the two countries are expected to begin work on phase 2 after 15th Jan 2020 which may lead to some speedbumps over the course of negotiations. Consequently, we maintain our forecast for BNM to reduce the OPR by 25bps by 1H 2020.
 

Source: Hong Leong Investment Bank Research - 6 Jan 2020