April exports experienced a double-digit increase of 18.9%, surpassing consensus expectation for a 9.7% rise. This is on account on strong demand for electrical and electronics (E&E) and mining goods from both the Eastern and Western economies. With exports having performed well in the 1Q14 and keeping a strong trajectory into the 2Q14, it remains the main driver for economic growth this year. It may however moderate somewhat in the 2H14 due to a higher base, but we reckon that economic recovery, especially in the US and parts of Europe will mitigate any fallback.

- Exports in April rose by a double-digit growth of 18.9% YoY, on a surge of demand for E&E and mining goods from Asia, the USA and the EU. This outpaces the previous month’s growth of 8.4%. On a monthly comparison, exports increased by 2.2% whilst the seasonally adjusted term saw a 1.4% increase. Year-to-date saw a 12.8% expansion compared to a 2.9% fall seen in the same period in 2013.

- Imports on the other hand expanded by 5.0%, stronger than consensus’ -0.7%, following a 0.5% increase in March. On a month-on-month basis, imports expanded by 3.7%. On a seasonally adjusted basis, imports rose by 3.5% whilst the year-to-date saw an increase of 5.4% versus 7.1% in 2013.

- Despite better exports performance, trade surplus narrowed to RM8.9b from RM9.6b, whilst total trade increased by 12.0% YoY, from 4.6% in the previous month. Year-to-date saw trade surplus increasing by RM35.2b compared to RM17.4b in the same period in 2013, whilst total trade increased by 9.3% from 1.7%.

- There was a 22.0% surge in demand for E&E products (31.7% share of total exports) and a 40.9% increase in demand for petroleum products (7.9% share) due to a rise in both volume (+29.3%) and average unit value (+9.0%). Exports of LNG (8.1% share) increased by 31.8% on rise in volume (+10.4%) and average unit value (+19.4%) whilst crude petroleum (5.3% of share) saw a 37.1% uptick in demand, on account of an increase in volume (+29.4%) and average unit value (+6.0%). However, there was a 0.2% marginal fall in demand for palm oil and its products (8.2% share), due to a 4.0% fall in palm oil, on account of falling volume (-15.2%). However there was a rise in average unit value (+13.4%).

- On shipment destination, exports to ASEAN (28.4% share) rose by 17.5%, led by demand from Singapore, which increased by 11.5%. Exports to China increased by 13.1%, on higher demand for manufactured goods, which increase by 26.0%. Demand from Japan expanded by 16.5%, predominantly on LNG and mining goods, despite the rise in taxes in the same month. Exports to the EU increased by 20.7%, its fourth consecutive month of double-digit expansion, sentiment of improving economic conditions despite the threat of deflation. It is led by exports to the Netherlands (+22.8%), Germany (+16.4%) and the UK (+34.2%) on strong demand for E&E, palm oil and chemical products. Exports to the USA increased by 17.1% on demand fro E&E, chemical goods and optical & scientific equipment. This is the strongest annual increase since March 2010.

- On imports, demand for capital goods (14.5% share of total imports) increased by 4.3%, due to an increase in imports of transport equipment and industrial imports whilst consumption goods (7.5% share) imports gained by 8.9% on durables (+25.4%) and non-durables (13.7%). Intermediate goods (57.1% share) imports however, experienced a 3.9% decline due to a decrease of imports of industrial supplied.

Outlook

- With exports starting strong in the 2Q14, and having exceeded expectation in the 1Q14, we are increasingly more optimistic moving forward. Though we reckon the pace of the trajectory may mitigate in the second half of the year on account of a high base effect, this should be mitigated by stronger demand from the US and parts of the EU. Instead of a cautious GDP forecast range of 5.0% to 5.5%, we now believe that growth will hit 5.5% in 2014, pulled by strong exports.

Source: Kenanga