Above market forecasts but below ours – Exports rebounded from contraction to +1.7% y-o-y in July 19 (vs June’19: -3.1% y-o-y) while imports narrowed its contraction to -5.9% y-o-y (vs June’19: -9.2% y-oy). Both export and import were marginally above market forecasts but below our expectation. Stellar exports were underpinned by exports of manufacturing goods which offset subdued exports growth in Mining and Agriculture products. Meanwhile, imports were bogged down by all of the import components such as Intermediate, Capital and Consumption goods. As such, the nation's trade surplus in July’19 soared to RM14.3b from RM10.3b in June’19, after rising +74.4% y-o-y and +39.4 m-o-m.

Steady exports buoyed by manufacturing outputs – Export of Manufacturing goods, which constitutes 86.1% of total exports, soaring +3.8% y-o-y in July’19 after registering a contraction of -5.0% y-o-y in June’19. Massive exports of manufacturing goods were backed by turnaround in exports of Machinery, Appliances & Parts: +6.0 % y-o-y (vs June’19: -10.9% y-o-y), E&E products: +4.5 % y-o-y (vs June’19: -6.0% y-o-y), Petroleum products: +2.8 % y-o-y (vs June’19: -2.7% y-o-y), and Chemicals & chemical products: +1.9% y-o-y (vs June’19: +1.3% y-o-y). However, exports of Optical & Scientific Equipment as well as Manufacture of metal were down by -2.3% y-o-y and -4.1% y-o-y respectively in July’19 from -4.9% y-o-y and -15.7% y-o-y respectively during June’19.

Exports of mining goods halted its growth; agriculture goods widened its contraction – Exports of Mining outputs returned back to contraction after posting a stellar growth in the previous month (July’19: -11.6% y-o-y vs June’19: +15.4% y-o-y). Disappointing export of mining outputs was bogged down by sluggish export of Crude petroleum products: -45.7% y-o-y (vs June’19: +31.7% y-o-y) despite stellar performance in LNG products: +31.3% y-o-y (vs June’19: +5.5% y-o-y). Besides, exports of Agriculture outputs widened its loss to -9.3% y-o-y in July’19 from -0.8% y-o-y in June’19 due to uninspiring exports of Palm oil products: -11.8% y-o-y (vs June’19: +3.0% y-o-y) and Rubber products: - 10.9% y-o-y (vs June’19: -17.9% y-o-y).

Steady exports to key trading partners despite dismal imports – Exports to ASEAN rose 1.8% y-o-y as buoyed by Singapore: +3.1% y-o-y (vs June’19: -1.1% y-o-y) and Vietnam: +6.5% y-o-y (vs June’19: - 17% y-o-y). Besides, exports to China remained steady, +3.8% y-o-y from -12% y-o-y in the prior month following higher exports in manufactures of metal, petroleum products and LNG products. Imports wise, most of the imports with trading partners were lower. Among the key trading partners with slower imports were Singapore: -20.2% y-o-y (vs June’19: -14.3% y-o-y), China: -2.8% y-o-y (vs June’19: -12.6% y-o-y) and Taiwan: -20.1% y-o-y (vs June’19: -11.6% y-o-y).

Imports still in the red – Imports contracted to -5.9% y-o-y as compared to -9.2% y-o-y in last month following dismal showings for all of import components. Import for intermediate goods which constitutes 52.8% of overall imports, diminishing to -3.45% y-o-y from -2.5% y-o-y in the prior month due to slower imports of electrical machinery, equipment and parts. Besides, Capital goods were down -13.9% y-o-y (vs June’19: -23.6% y-o-y), no thanks to lower imports of aircraft and parts. Other than that, Consumption goods narrowed its losses to -5.0% y-o-y from -5.4% y-o-y in the previous month caused by lower imports of apparel and clothing accessories.

Expecting a mild growth for both export and import in 2H19 – We anticipate exports and imports to grow softer in 2H19 as we believe escalation from the trade tension to continue in line with slowing global economic indicators. We expect exports and imports to grow +2.8% and +2.4% respectively in 2019. We believe overall external trade will remain positive, albeit at a slower pace, driven by the Manufacturing sector which is backed by resilient global trade activities and gradual recovery in commodity prices. However, we opine that the prevailing trade war between the US and China could potentially derail the global trade and hence affecting our export performance for 2019.

Source: JF Apex Securities Research - 5 Sept 2019