Trade Surplus Reached a Record High of RM16.3bn in October

Malaysia’s exports rose sharply by 17.7% yoy in October from 6.7% in September, significantly higher than market expectation of a 5.8% increase. The strong export growth was led by the double-digit growth in exports of manufactured goods and mining goods, which increased by 19.9% yoy and 29.6%, respectively (7.9% yoy and 17% respectively in September). However, exports of agriculture goods declined in October by 12.3% yoy (-10.7% yoy in September) due to lower exports of palm oil and palm oil-based agriculture products.

In the manufactured goods cluster, exports of electrical & electronic (E&E) products rose sharply by 23.3% yoy in October (6.5% in September), led by higher demand for thermionic valves & tubes and photocells (39.9%), electrical apparatus and parts (9%), and telecommunications equipment, parts and accessories (6.4%). Meanwhile, exports of parts and accessories for office machines slowed to 0.5% yoy in October (4.1% in September). Growth in global semiconductor sales rose by 12.7% yoy in October (13.8% in September).

The Semiconductor Industry Association (SIA) guided that despite the recent moderation, global semiconductor sales are poised to register a record high annual sales growth of 15.9% in 2018. Other manufactured goods which registered strong growth in October were chemicals and chemical products (36.5%), refined petroleum products (31.2%), manufactures of metal (29%), rubber products (14.2%) as well as machinery & appliances (4.2%).

The strong demand for liquefied natural gas (LNG), which rose by 38.8% yoy (1.8% in September), its highest growth since May 2018, was reflected in the exports of mining goods. Exports of crude petroleum increased albeit at a slower rate of 32.8% yoy (54.5% yoy in September). Both improvements of LNG and crude petroleum were attributed to higher Average Unit Value (AUV).

Exports to the US, China, Japan and ASEAN Improved

Malaysia’s exports to ASEAN surged to double-digit growth of 16% yoy in October from 5.8% in September, its fastest pace since December 2017, led by an increase in demand for E&E products, petroleum products, chemicals and chemical products, manufactures of metal as well as machinery, equipment and parts. By ASEAN country, Malaysia’s exports to Vietnam rose sharply by 36.6% yoy in October, followed by Thailand (20.8% yoy), Singapore (18.3%), the Philippines (9.8%) and Indonesia (3.6%).

Export growth to the US continued to improve from 0.1% yoy in September to 7.6% in October, supported by exports of E&E products, rubber products, optical and scientific equipment and machinery, equipment and parts. Export growth to China also rebounded from a decline of -0.6% yoy in September to a threemonth high of 33% in October, supported by demand for E&E products, petroleum products, chemicals and chemical products and LNG. Similarly, exports to Japan turned around to register an increase of 10.2% yoy in October (-10.6% in September) after four consecutive months of decline.

Gross import growth rebounded strongly to 11.4% yoy in October

Gross imports also registered a double-digit growth of 11.4% yoy in October, following a decline of 2.8% in September, making this its highest reading since June 2018 and above market expectation of 3.3%. Higher gross imports were driven by the rebound in imports of intermediate and consumption goods, which had increased by 1% yoy and 7.6%, respectively (-9.5% and -10%, respectively in September). The rebound in imports of intermediate goods provided some indication that Malaysia’s export performance should continue to remain steady in the coming months. However, imports of capital goods declined for the second straight month by 1.6% yoy in October (-21.4% in September). In October, stronger growth of exports relative to imports led the trade balance to register its widest surplus on record of RM16.3bn from RM15.2bn in September. The country’s trade surplus has increased to RM102bn YTD (RM81.2bn in the corresponding period of 2017).

Going forward, we believe Malaysia’s exports will be supported by the anticipated modest (and healthy) growth in the external environment, as reflected in IMF’s global growth forecast of 3.7% next year. We expect Malaysia’s real exports of goods and services to improve from 1.4% estimated for 2018 to about 1.8% in 2019, where exports of non-commodity products will remain healthy from demand for E&E products in 2019, especially from the US. According to Semiconductor Industry Association (SIA), the outlook for the global semiconductor industry is expected to remain positive in 2019; in absolute terms, worldwide sales are projected to increase from US$477.9bn in 2018 to US$490.3bn in 2019. With the YTD trade surplus at 99% of our earlier full-year forecast (RM98.5bn in 2017), we are revising up our full-year forecast to RM120-125bn for 2018, and a surplus of about RM100bn for 2019.

Source: Affin Hwang Research - 6 Dec 2018