- Exports in February remained strong and expanded by 12.3% YoY, a tick higher than the previous month’s 12.2% and beating market expectations of 10.6%. This is the result of continued robust demand for electrical and electronics (E&E) from Asia, USA and the EU. On a monthly comparison however, exports fell by 7.9%, an annual norm as many companies wind down production on account of the Lunar New Year. On a seasonally adjusted basis, exports shrank by 11.5%. Year-to-date saw a 12.3% rise compared to a 2.3% fall seen in the same period in 2013.

- Imports also remained strong in February, rising by 9.5% following a 7.2% increase in January. Monthly comparison however, saw a 15.9% decrease in imports and on a seasonally adjusted basis, a 16.6% fall. Similar to the exports situation, we reckon this is the effect of factories winding down during the festivities. Year-to-date saw an 8.3% increase, versus 5.8% in 2013.

- On better exports, trade surplus widened to RM10.4b from RM6.4b whilst total trade increased by 11.0% annually, from 9.8% in January.

- February saw an 18.1% increase in the shipment of E&E (31.6% share of total exports), the strongest annual increase since May 2010. There was also strong demand for LNG, which increased by 18.8% an account of a 14.1% increase in unit value and a 4.1% rise in export volume. This is followed by a rise in demand for palm oil and its products, of which exports rose by 8.2%. However, there was a reduction in exports of petroleum products (-6.5%) due to an 11.5% fall in volume exported, despite the 5.7% rise in average unite value.

- On shipment destination, exports to China surged by 23.6%, on the backing of strong demand for E&E products as well as petroleum products and palm oil. This is followed by a 17.5% rise in exports to Japan, mainly on LNG but also E&E. We expect steady demand of LNG from Japan for some time yet, even though some reactors could be going online this year. A bulk of their energy source still remains dependent on LNG, going by the contract signed by Japanese utility Tohoku Electric Power Co to buy LNG from Malaysia's LNG II project for 10 years from 2016. - Exports to the EU increased by 15.9%, mainly on a surge for demand from Germany (+46.4%). The main exports to the EU were E&E as well as optical and scientific equipment. Exports to ASEAN rose by 5.7%, on account of a 14.9% revival in demand from Singapore. Exports to the USA rose by 8.4% on higher demand for E&E, which accounts for 54.4% of total exports to the States.

- On imports, demand for intermediate goods increased by 9.4% in February, mainly on fuels & lubricants and in parts & accessories of capital goods (sans transport equipment). Imports of capital goods however, fell by 11.9% on account of a decrease in imports of transport equipment and industrial goods. Consumption goods imports gained 17.9% on nondurables and goods for household consumption, in light of on-going festivities surrounding the Lunar New Year celebrations.

- With exports and imports for the first two months of the year retaining its strength, we become increasingly more optimistic on exports trajectory hereon. This would invariably support our exports forecast of 3.3% for the whole of 2014 up from 2.4% in 2013. Immediately, exports is estimated to expand by more than 12.0% in 1Q14 from 10.2% in the preceding quarter giving a stronger backing for the GDP to rise by 5.1% for 1Q14 from 4.7% in 4Q13. However, despite continued domestic expansion of major infrastructure projects and overall global recovery mitigating uncertainties of domestic consumption, we still err on the cautious side, thus looking at 2014 GDP to expand within the range of 5.0% and 5.5%.

Source: Kenanga