Exports in November exceeded expectations and rebounded by 2.1% after falling by 3.1% in October. Consensus had predicted a 0.7% contraction. This is partly attributed to large shipments of E&E products, to fulfil increased demand towards the year-end holidays and festivities. Despite this improvement, growth uncertainties are still very much prevalent that irrespective of year-end demand, the slower-than-expected rebound from major economies and weaker-than-estimated 3Q14 growth will end up mitigating an upside effects in the 4Q14. We are looking at the 4Q14 GDP growth to decelerate further to 5.1% (3Q14: 5.6%), thus bringing about to a full year growth of 5.8% (2013: 4.7%)

· Exports in November gained 2.1% YoY, quickest annual gain since May 2014. This is following a contraction of 3.2% in the month of October. This came in as a surprise as we had estimated a growth of 0.3% while the consensus had expected a 0.7% fall. However, the monthly comparison saw a 2.0% MoM decline, which donates the fact that global uncertainties remain prevalent despite the boost that usually comes towards the year-end holidays and festivities. In seasonally adjusted terms, exports saw a 3.3% decrease. To date, exports grew by 6.8% compared to 1.4% seen in the same period in 2013.

· Imports in November however, grew below expectations, gaining just 0.1% YoY from a consensus estimate of 8.3%. This follows a strong gain of 9.1% in October. Though the month of November has generally seen a winding down of imported goods, the sharp 17.7% MoM fall was a steeper contraction to the norm, which usually averages around 6.2% MoM decline (since 2009). We believe that this is the impact of limited domestic demand in light of higher costs due to subsidy rationalization earlier in the year. On seasonally adjusted terms, imports fell by 17.4% MoM. Year-to-date growth recorded a 5.4% expansion, slightly weaker than 6.3% seen in 2013.

· As a result of stronger exports, trade surplus widened to RM11.1b from RM1.2b. This is the widest surplus since October 2011. To date, surplus widened to RM73.9b from RM61.5b in the same time frame in 2013. Total trade in November increased by 1.2% from 2.5% in October, and year-to-date saw a 6.1% rise in total trade compared to 3.6% in 2013.

· On a sector basis, the exports of electrical and electronics (E&E) which contributes 36.0% of total exports, saw an annual rise of 7.1%. This is following a 4.5% decline previously. Compared to the previous month, it gained 7.4%. The shipment of crude petroleum rose by 12.5% annually on a 35.4% rise in volume exported. This managed to offset the 16.9% drop in average unit value. Other commodities however did not perform as well. Exports of petroleum products saw a 15.8% drop, LNG fell by 7.3%, and palm oil & its products decreased by 7.2%.

· On destination of export delivery, November’s shipment to ASEAN countries rose by 13.3% (0.9% in October), largely supported by demand from Singapore (+18.0%), Thailand (+8.4%), Indonesia (+6.6%) and Vietnam (+18.4%). Crude petroleum, petroleum products, and manufactures of metal were the main drivers for demand. Exports to Japan increased by 9.6% (October: -4.7%) on LNG, petroleum products and manufactures of metal. Meanwhile, deliveries to China saw a steep contraction of 14.6%. However, demand for E&E (47.7% of total exports to China) remained a positive 3.5%. In the West, shipments to the US surged 16.0% led by E&E and optical & scientific equipment, while exports to Europe expanded by 8.6%, mainly on E&E goods.

· On the domestic end, imports of intermediate goods increased by 3.4%. This follows a 20.8% surge in the previous month. On a monthly comparison, intermediate goods imports fell by 23.6% MoM as it faced strong base from the previous month. Capital goods imports rebounded by 6.3% (October: -4.9%) whilst consumption goods imports fell by 1.7% (October: +5.9%). We reckon that high costs were part of the reason behind weaker domestic demand, though subsidy on petrol prices has since been removed (currently on a managed float pricing) and the drop in global oil prices also meant that prices of petrol (RON95) fell by RM0.04 in December (to RM2.26/litre from RM2.30) and by RM0.35 in January (to RM1.91/litre). This should help boost consumption in December and to the run up of the Chinese New Year celebrations in February.

Source: Kenanga