Export growth continued to accelerate for a third month running on currency translation gains from a weaker ringgit. September export receipts hit a 16-month high of 8.8% YoY, lifting 3Q15 export growth to 5.5% YoY after two consecutive quarters of negative growth. Imports rebounded sharply from the previous month’s contraction, up 9.6% YoY on higher value of capital and consumption goods imports. The September trade balance of RM9.7b was slightly lower than in August but still above the long-run average as total trade increased by 9.1% YoY. We expect to see ringgit-denominated export receipts grow at a 5.2% YoY rate in 4Q15 despite weakening global trade, implying full-year export growth of 1.2%. Imports are forecasted to contract by 0.2% for the full-year. The trade and current account balance should continue to have no trouble remaining comfortably in surplus and our GDP growth estimate for 3Q15 is unchanged at 5.1% YoY.

• September exports performed better than expected, logging 8.8% YoY growth (August: 4.1%) compared to consensus and house estimates for a 3.6% and 6.9% increase respectively.
• This was the fourth month of a rebound fuelled by rapid ringgit depreciation, which boosts the value of mainstay electronic & electrical (E&E) exports and other manufacturing products. On a MoM basis, exports rose 5.5% and in seasonally adjusted terms was up 5.2%.
• 3Q15 exports turned to positive growth of 5.5% YoY after two quarters of negative growth (1Q15: -2.5%, 2Q15: -3.7%) on currency translation gains from a favourable exchange rate for Malaysian exporters and a low-base effect. Malaysia’s exports also attained higher competitive advantage as the ringgit value fell the sharpest in the three months during the quarter giving exports receipts a boost.
• The outstanding export growth numbers for September and 3Q15 in general hides the fact that most of the gains are due to a substantially weaker ringgit. In US dollar terms, exports were down 18.8% YoY (August: 18.5%), the twelfth consecutive month of negative growth.
•  The implied USDMYR rate averaged 4.3117 in September, compared to 3.2182 for the same month in 2014, equivalent to depreciation in the ringgit relative to the US dollar of 25.4%.
• Currency translation gains also explain why export receipts from the E&E sector continue to grow at double-digit rates (September: 13.6% YoY) despite global semiconductor shipments slipping into negative growth territory in 3Q15. E&E exports account for a 37.2% share of total exports.
• Oil & gas exports by value fell 25.0% YoY but on a MoM basis was up 10.3%. Over the past three months, crude oil prices in international markets have stabilised at just under US$50 a barrel (Brent).
• September imports increased 9.6% YoY following August decline of 6.1%. The strong rebound beat consensus and house estimates for a 3.0% and 5.8% YoY decline respectively. Sharp increases in capital and consumption goods imports led to the rebound. On a MoM basis, imports rose 7.3% and 8.9% after seasonal adjustment.
• Imports of intermediate goods contracted by 6.6% YoY compared to a larger decline of 13.6% in August. Purchased of capital goods however increased 29.7% YoY after declining 14.0% last month, probably because of the higher cost of machinery from the weak ringgit exchange rate against major world currencies.
• Consumption goods logged a sixth consecutive month of double-digit YoY growth with an even larger increase of 43.2% YoY. This is no surprise as the ringgit fell to its weakest during September and prices of consumption goods are particularly sensitive to currency exchange fluctuations. Consumption goods now accounts for a 9.4% share of total imports (long-run average: 7.2%)
• Rapid increase in the value of consumption exports is increasing the incidence of imported inflation. However, imported price pressure remains mild as many of Malaysia’s main trading partners are facing deflation and global food prices remain low.
• The trade surplus for September of RM9.7b was just under the August surplus of RM10.2b due to roughly balanced increases in both exports and imports. Total trade was up 9.1% YoY after falling 0.9% in August.

Source: Kenanga Research - 9 Nov 2015