Easing export growth albeit massive contraction in imports – Exports during July’20 retained its positive trajectory but substantially eased to +3.1% y-o-y as compared to +8.8% y-o-y during June’20. Nevertheless, imports extended its contraction to 8.7% y-o-y (vs June’20:-5.7% y-o-y). Exports result exceeded our in-house and market expectation while imports were below ours and market forecast. July’20 exports was underpinned by higher exports of manufactured and agriculture outputs. Meanwhile, imports were further bogged down by intermediate and capital goods. Therefore, trade surplus widened to RM25.2b, growing +57.5% y-o-y. Besides, exports and imports on a monthly basis improved 11.7% m-o-m and 8.7% m-o-m in view of further improvement of economic activities.

Robust exports across manufacturing outputs – Export of Manufacturing outputs which was the main contributor for overall exports (87.5%) rose 4.2% y-o-y (vs June’20:+13.7%) spurred by better exports in E&E products (+9.2% y-o-y vs June’20:+15.9% y-o-y), Optical & scientific equipment (+9.9% yo-y vs June’20:+35.6% y-o-y), Rubber products (+93.9% y-o-y vs June’20:+101% y-o-y) and Iron & steel (+93.9% y-o-y vs June’20:+101.0% y-o-y). However, other manufactured outputs exports contracted during this period such as Chemicals & chemical products (-23.2% y-o-y vs June’20:-5.9 y-o-y), Machinery, equipment & parts (-4.4% y-o-y vs June’20:+29.4 y-o-y) and Manufactures of metal (-5.9% y-o-y vs June’20:+9.4 y-o-y).

Exports of agriculture products improved further amid disappointing mining – Export of Mining remain contracted since a year ago (July’19), tumbled -30.2% y-o-y (vs June’20:-45.6% y-o-y, no thanks to lesser exports of Crude petroleum (-4.9% y-o-y vs June’20:-24.5% y-o-y) as well as LNG products. However, exports of Agriculture improved to +30.4% y-o-y from +30.0% y-o-y buoyed by stellar exports in palm oil and palm oil-based agriculture products (+52.0% y-o-y vs June’20:+45.4% y-o-y).

Imports to ASEAN tumbled, trade with India rebounded – Exports to ASEAN were little growth, +0.2% y-o-y (vs June’:+1.3% y-o-y) arising from higher exports to Singapore (+3.8% y-o-y) (E&E products), Philippines (+13.7% y-o-y) (petroleum products), Brunei (+75.6% y-o-y) (crude petroleum), Myanmar (+8.0% y-o-y) and Laos (+123.1% y-o-y). However, imports with ASEAN slipped -12.6% y-o-y due to slower imports from Thailand (-23.1% y-o-y), Indonesia (-21.0% y-o-y). Other than that, trade performance with India improved as both exports and imports boosted +42.5% y-o-y and +52.0% y-o-y respectively in view of higher trade in palm oil and palm oil-based agriculture products, we believe.

Imports widened contraction, slower imports of Intermediate and Capital products – Imports extended contraction, widening to -8.7% y-o-y (vs June’20: -5.6% y-o-y). Intermediate goods extend contraction to -17.3% y-o-y (vs June’20: -10.8% y-o-y) in view of lower imports of iron & steel. Moreover, capital goods depleted -19.7% y-o-y (vs June’20: +2.8% y-o-y) amid lesser imports in parts of machinery & mechanical appliances. Nevertheless, consumption products little rose to +0.1% y-o-y (vs June’20: +9.0% y-o-y) underpinned by improved imports of machinery & mechanical appliances.

Subdued trade growth for 2020 – We expect trade activities for 2H20 to improve further amid resumptions in economic and social activities since recovery mandatory control order (RMCO). Still, for 2020, we expect trade performance remains challenging as it is being deteriorated by Covid-19 virus outbreak in the worldwide. Moreover, despite some recovery of number of COVID-19 cases, we are still cautious on the downside risk of new waves of COVID-19 cases in some countries. Overall, we foresee global supply disruption and dampened demand no thanks to the pandemic, thus lowering global growth activities and affecting our nation’s trade performance.

Source: JF Apex Securities Research - 1 Sept 2020