Exports rebounded by +8.8% YoY in June (May: -25.5% YoY), beating the consensus estimate of -10.0% YoY. Meanwhile, imports shrank at a lower rate of -5.6% YoY (May: -30.4% YoY). The expansion in exports was mainly driven by higher exports of manufactured products. The smaller decline in imports were attributed to the rebound in capital and consumption imports. Consequently, trade surplus widened to RM20.9bn (May: RM10.4bn), the largest on record.

DATA HIGHLIGHTS

Exports posted a rebound in June (+8.8% YoY; May: -25.5% YoY), beating the consensus estimate of -10.0% YoY, as lockdown measures eased on the global and domestic front. Imports declined by a smaller magnitude (-5.6% YoY; May: -30.4% YoY). On a monthly basis, exports (+32.3%; May: -3.3%) and imports (+18.6%; May: - 23.6%) recorded double-digit growths. This widened the trade surplus to RM20.9bn (May: RM10.4bn), the largest on record.

Exports to China surged by +46.8% YoY (May: +4.5% YoY), driven by exports of iron and steel products, manufactures of metal, petroleum and palm oil products. Meanwhile, exports to US (+27.6% YoY; May: -9.3% YoY), Japan (+9.8% YoY; May: - 33.1% YoY), EU (+3.3% YoY; May: -25.4% YoY) and ASEAN (+1.3% YoY; May: -30.7% YoY) recovered.

Manufactured exports rebounded by +13.5% YoY (May: -24.1% YoY) amid an increase in exports of optical (+35.6% YoY; May: -11.3% YoY), machinery (+29.4% YoY; May: - 29.6% YoY), E&E (+15.9% YoY; May: -19.9% YoY) and metal (+9.4% YoY; May: - 35.4% YoY). Chemical exports continued to fall, albeit at a slower pace (-5.9% YoY; May: -24.2% YoY).

Commodity-related exports declined at a slower pace of -7.3% YoY (May: -30.6% YoY). This was attributed to the robust demand for rubber (+101.0% YoY; May: +20.5% YoY), as well as palm oil products (+45.4% YoY; May: -15.6% YoY), which partially offset the continued decline in crude petroleum (-70.9% YoY; May: -69.0% YoY), petroleum products (-26.0% YoY; May: -42.7% YoY) and LNG (-24.5% YoY; May: -30.7% YoY).

Meanwhile, the decline in imports (-5.6% YoY; May: -30.4% YoY) eased on the back of a rebound in capital (+2.8% YoY; May: -27.9% YoY) and consumption imports (+9.0% YoY; May: -21.9% YoY). Capital imports were driven by higher imports of electrical machinery, equipment and parts while consumption imports rose following higher imports of household food and beverages. The decline in intermediate imports slowed to -10.8% YoY (May: -27.8% YoY).

In 2Q20, exports and imports sank by -14.3% YoY (1Q20: +1.1% YoY) and -15.1% YoY (1Q20: +1.3% YoY) respectively. Trade surplus amounted to RM27.6bn in 2Q20, lower than trade surplus recorded in 2Q19 (RM30.4bn). This suggests external trade may have contracted from overall 2Q20 GDP (released on 14th Aug 2020).

HLIB’s VIEW

June’s export performance was stronger than expectations, indicating a recovery in external demand as more segments of the economy reopened following gradual easing of lockdown measures. However, the resurgence of Covid-19 cases in some of Malaysia’s major export markets since the end of June 2020 and strained relations between US and China pose some downside risk to trade performance. On this note, we maintain our expectation for BNM to reduce OPR by another 25bps as early as September MPC meeting.

Source: Hong Leong Investment Bank Research - 29 Jul 2020