Massive rebound in export on the back narrowed imports contraction – Exports for the month of Sept’20 surged +13.6% y-o-y to rebound from -2.9% y-o-y in Aug’20. The result was substantially beyond our in-house forecast as well as market expectation. The encouraging result was underpinned by higher exports in Manufacturing and Agriculture sectors which offset contraction in the Mining sector. Nevertheless, imports marginally lagged behind our internal and market forecast, improving to -3.6% y-o-y in Sept’20 from -6.5% y-o-y in the previous month. Slower import growth was due to heavy contraction in Intermediate and Capital products. As a result, trade surplus widened to RM22b, soaring +149.4% y-o-y and +66.2% m-o-m. On a monthly basis, both exports and imports returned to the black at +12.4% m-o-m and +1.6% m-o-m respectively (vs Aug’20: -14.5% m-o-m and -2.2% m-o-m). For 3Q20, exports improved +4.4% y-o-y while imports declined -6.3% y-o-y.

Double digit growth in export of Manufacturing products – Export of Manufacturing products rebounded to double digit growth at +16.3% y-o-y (vs Aug’20:-0.1% y-o-y), thanks to steady exports of E&E products (+33% y-o-y vs Aug’20:+7.6% y-o-y), Chemicals & chemical products (+0.6% y-o-y vs Aug’20:-23.4% y-o-y) and Rubber products (+115.8% y-o-y vs Aug’20:+66.8% y-o-y) which registered triple-digit growth. Meanwhile, Optical & scientific equipment eased to +6.2% y-o-y from+28.6% y-o-y in the prior month. Despite the stellar overall manufacturing export, both Manufactures of metal (-5.8% y-o-y vs Aug’20:-30.7% y-o-y), and Petroleum products (-29.5% y-o-y vs Aug’20:-16.0y-o-y) showed declines during this period. As for 9M20, exports of Manufactured products depleted -1.5% y-o-y in view of lower demand from Chemicals & chemical products, Manufactures of metal, Petroleum products as well as Jewelry.

Export of Mining widened its double digit contraction; Agriculture returned to the black – Export of Mining products extended its contraction to -27.4% y-o-y (vs Aug’20:-25.7% y-o-y) in view of slower demand from both LNG products. Nevertheless, exports of Agriculture posted a positive growth of +26.6% during this period from -4.5% y-o-y in the prior month arising from heavy exports of palm oil and palm oil-based agriculture products (+43.6% y-o-y vs Aug’20:+0.4% y-o-y). During 9M20, exports of Mining fell -27.2% due to lower exports of LNG, Crude petroleum as well as Petroleum condensates & other petroleum oil. Nevertheless, Agriculture rose +2.3% y-o-y attributed to stellar demand of palm oil and palm oil-based agriculture products.

ASEAN exports rebound despite contraction in imports; trade with China remains steady – Exports to ASEAN rose +6.7% y-o-y (vs Aug’20:-8.0% y-o-y) in view of higher exports to Singapore (+13.7% y-o-y), Vietnam (+6.0% y-o-y), Philippines (+91.5% y-o-y), Myanmar (+14.1% y-o-y) and Laos (+85% y-o-y). However, imports diminished -7.4% y-o-y. As for China, both exports and imports grew steadily to +41.9% y-o-y and +6.1% y-o-y respectively arising from huge trade of E&E products, iron & steel products and palm oil and palm oil-based agriculture products.

Marginal contraction in import – Imports declined -3.6% y-o-y during Sept’20 (vs Aug’20:-6.4% y-o-y) due to less imports of Intermediate and Capital items. Intermediate goods, which make up main import components (49% from total imports), declined -17.8% y-o-y as compared to -5.6% y-o-y arising from lesser imports of electrical machinery, equipment & parts. Also, Capital goods fell -2.0% y-o-y (vs Aug’20:- 15.5% y-o-y) following less imports of machinery & mechanical appliances. Nevertheless, Consumption products extended its positive trajectory to +11.2% y-o-y from +2.9% y-o-y in Aug’20, thanks to higher import of parts of machinery & mechanical appliances.

Subdued trade growth for 2020 – We expect trade activities for Oct’20 to ease in view of conditional movement control order (CMCO) in selected area arising from the recent spike in new COVID-19 cases. For 2020, we expect trade performance to remain challenging as it is being deteriorated by new waves of COVID-19 virus outbreak in our nation as well as globally. 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 - 30 Oct 2020