Exports posted a strong rebound of +13.6% YoY in Sep (Aug: -2.9% YoY), exceeding consensus expectations of a +2.0% YoY increase. Growth was driven mainly by the surge in E&E exports in addition to palm oil and rubber product shipments. Meanwhile, imports continued to contract by a smaller magnitude (-3.6% YoY; Aug: -6.5% YoY), owing to a surge in consumption imports. Consequently, the trade surplus widened to RM22.0bn (Aug: RM13.2bn). In 3Q20, exports rebounded by +4.4% YoY (2Q20: -15.1% YoY), while the decline in imports eased (-6.3% YoY; 2Q20: -15.1% YoY). Trade surplus grew to RM60.4bn (2Q20: RM27.6bn).

DATA HIGHLIGHTS

Exports surged +13.6% YoY in Sep (Aug: -2.9% YoY), the fastest growth since Oct 2018, exceeding the consensus estimate of +2.0% YoY. Imports remained in negative territory, albeit at a smaller rate of -3.6% YoY (Aug: -6.5% YoY). The trade surplus widened to RM22.0bn (Aug: RM13.2bn), surging +149.3% YoY from a year earlier (Aug: +19.6% YoY). As economic activity picked up in 3Q20, exports rebounded by +4.4% YoY (2Q20: -15.1% YoY), while the decline in imports eased (- 6.3% YoY; 2Q20: -15.1% YoY). Trade surplus grew to RM60.4bn (2Q20: RM27.6bn).

Exports to China jumped +41.9% YoY (Aug: +20.9% YoY), driven by E&E, iron and steel products as well as palm oil products. Exports to US also quickened (+22.1% YoY; Aug: +13.6% YoY), while exports to EU (+28.6% YoY; Aug: -4.3% YoY) and ASEAN rebounded (+6.7% YoY; Aug: -8.0% YoY). Meanwhile, exports to Japan remained weak (-11.3% YoY; Aug: -13.9% YoY).

Commodity-related exports recovered (+6.8% YoY; Aug: -5.1% YoY) on the back of higher rubber (+115.8% YoY; Aug: +66.8% YoY), palm oil (+43.6% YoY; Aug: +0.4% YoY) and crude petroleum exports (+22.2% YoY; Aug: 0%), which offset steeper decline in LNG (-52.2% YoY; Aug: -49.1% YoY) and petroleum products (-29.5% YoY; Aug: -16.0% YoY).

Manufactured exports also posted a rebound (+15.3% YoY; Aug: -2.4% YoY), largely driven by strong E&E (+33.0% YoY; Aug: +7.6% YoY) and turnaround in machinery exports (+5.0% YoY; Aug: -11.3% YoY). Chemical exports also recovered, albeit only marginally (+0.6% YoY; Aug: -23.4% YoY). These offset the moderation in optical & scientific equipment exports (+6.2% YoY; Aug: +28.6% YoY).

Imports continued to decline (-3.6% YoY; Aug: -6.5% YoY) amid contraction in intermediate (-17.8% YoY; Aug: -5.6% YoY) and capital imports (-1.8% YoY; Aug: - 15.6% YoY). Nevertheless, the decline was cushioned by the surge in consumption imports (+11.2% YoY; Aug: +2.9% YoY), stemming from higher imports of durables, such as machinery and mechanical appliances. Trade surplus in 3Q20 amounted to RM60.4bn, larger than surplus recorded in 3Q19 (RM35.8bn) due to weak imports. This implies trade could have contributed to overall GDP in 3Q20.

HLIB’s VIEW

The rebound in 3Q20 suggests external demand conditions have improved as countries relax containment measures. The World Trade Organization now expects a less severe contraction in world trade volume for the year (-9.2%; previous: -12.9% under an optimistic scenario), followed by a +7.2% rebound in 2021. Nevertheless, significant downside remain due to a resurgence of Covid-19 cases and ensuing targeted lockdowns, which are currently observed at home and abroad. Maintain 2020 GDP at -5.0%

Source: Hong Leong Investment Bank Research - 30 Oct 2020