Manufacturing PMI Was Supported by Sharp Increase in Vietnam

Asean manufacturing PMI rose by 0.6 points to 50.4 in November (49.8 in October). The improvement was driven by strong perfromance in Vietnam (56.5, the sharpest improvement of 2.6 percentage points since the data collection began in December 2015), followed by Philippines (54.2, the highest reading since November 2017), and Indonesia (50.4), higher than the 50 threshold. Similarly, Thailand’s manufacturing PMI improved by 0.9 percentage points to 49.8, albeit still below 50-level for second consecutive month, while manufacturing PMI fell for Singapore (47.4 vs 52.6 in November) and Malaysia (48.2 vs 49.2 in November). According to IHS Markit, the overall Asean manufacturing PMI in November was supported by improvement in business condition, where the purchasing activity rose for the first time in three months. However, the growth remained weak as export sales continued to decline for fourth straight months due to uncertain external conditions, including the slowdown in global trade performance, which affected exports for some of the Asean countries.

Separately, Philippines’ inflation, which rose to the highest level in nine-year for both September and October at 6.7% yoy, improved to 6% in November. This was better than market expectations of 6.3%. In 11M18 period, inflation rate averaged about 5.2%, significantly higher than 2.9% in the same period from the corresponding year. This was also higher than the central bank’s inflation target range of 2-4%, but the inflation target has been revised to 5.3% this year. However, the central bank noted that the inflation rate is already at its peak, and will likely begin to moderate further in year 2019. This was also consistent with global Brent oil price, which has started to slow in November, and currently trending around US$60-62 a barrel. The central bank continued to maintain inflation forecast for 2019 in a range of 2-4%. On monetary front, we believe Bangko Sentral Ng Pilipinas (BSP) will be less aggressive in raising its policy rate for next year, as inflation will begin to dissipate in 1Q19.

In Indonesia, the inflationary pressure continues to remain manageable. The November inflation remained at the same level of 3.2% as in October, broadly in line with market expectations. Slower inflation in November was seen in food components, as well as on education, recreation and sports. This helped to offset the jump in transport cost, clothing, as well as housing and utilities in the same month. On a cumulative basis, inflation averaged 3.2% yoy in January – November 2018, in line with official target of 3.5±1%. We believe the focus of the country’s monetary policy will be on economic growth after weaker-than-expected growth posted in third quarter. Recently, Bank Indonesia (BI) highlighted its GDP growth target for 2019 to be in the range of 5.0-5.4%. After raising its key policy rate by the 175bps, with policy rate currently at 6%, we believe BI will likely pause the rate hike in 1H19, while continue to monitor economic condition and external environment.

Source: Affin Hwang Research - 7 Dec 2018