Overview
 

• Total export receipts for November grew at the fastest pace in nine months at 7.8% YoY, overshooting the market expectations of 1.4% YoY. Similarly, imports surged 11.2% YoY against consensus estimate of 3.0%. Consequently, the trade balance narrowed slightly to RM9.0b in November.

• Robust palm oil exports growth and a lower base comparison have largely driven the strong exports monthly performance in November. Commodity exports contraction eased to 1.5% YoY (October: -21.0%) as palm oil exports surged 25.6% YoY. Meanwhile, electrical and electronics (E&E) exports jumped 13.2% YoY in November.

• By import category, purchase of capital and intermediate goods rebounded sharply by 13.1% YoY and 11.3% respectively in November from -4.1% and -8.4% respectively in October. Imports of consumption goods grew 5.4% YoY in November.

• Though exports would likely moderate in December following November’s robust performance, we view that weaker ringgit and higher average crude oil price could help sustain exports growth from December onwards.

• We reiterate our view for Malaysia’s terms of trade to experience a brighter prospect in 2017 as global economy picks up momentum. Furthermore, we see the depreciation of the ringgit, stable global demand outlook for E&E products and a recovery in commodities prices to lift exports growth higher this year.

Exports were surprisingly strong in November, rising sharply to 7.8% YoY after a 8.6% contraction in October. This was significantly higher than consensus and house expectations of 1.4% YoY and -4.3% YoY respectively. On a monthly basis, exports grew 5.2% and expanded at a higher 11.8% after seasonal adjustment. Year-to-date, however, exports grew just 0.2% compared to a 1.6% growth in the previous year.

The published USDMYR rate in November averaged 4.3349 compared with 4.3086 in the corresponding month of last year. The slight depreciaton of the ringgit suggests a certain degree of currency translation effect that helps to boost the exports performance in November. In U.S. dollar term, exports rebounded by 7.1% YoY and 1.4% MoM from -6.7% YoY in October.

By category, E&E exports in November jumped 13.2% YoY from 1.4% in October, mainly attributable to a lower base comparison from last year. On a monthly basis, E&E exports actually declined by 1.7%. The E&E growth is likely to stay modest for the next few months as the pre-festivities demand appeared to have peaked in August. Meanwhile, the share of E&E exports fell to 35.9% in November (October: 38.5%).

Commodity exports contraction eased significantly to 1.5% YoY in November (October: -21.0%). This is mostly due to a 25.6% YoY surge in palm oil exports receipts in November. On the other hand, crude petroleum and liquefied natrual gas fell 6.1% YoY and 21.3% YoY respectively, as the average unit value of both the commodities declined in November.

November imports rebounded by 11.2% YoY after a 6.6% decline in October. The gain was above consensus and house estimates of 3.0% YoY and -7.6% YoY respectively. On a monthly basis, imports expanded 7.3% compared to a 1.7% contraction in October. In seasonally adjusted terms, imports surged 18.9% MoM.

Imports of capital goods increased at a solid pace of 13.1% YoY from -4.1% in October. The strong yearly growth was mainly influenced by a lower base comparison, as the category suffered a 11.0% monthly decline last year. On a MoM basis, it rose for the third month to 5.0% in November. Year-to-date, it also grew higher at 4.2% YoY compared with 1.1% last year.

Imports of consumption goods rose 5.4% YoY after a 7.9% drop in October. On a monthly basis, it surged 14.8% in November, led by a monthly increase in imports of semidurable goods and non-durable goods by 21.3% and 18.8% respectively. The share of consumption goods imports rose to 9.6% from 9.0% in October.

Imports of intermediate goods rebounded by 11.3% YoY in November following an 8.4% decline in the previous month. A lower base comparison from last year has partly accounted for the strong import performance of the category in November. On a monthly basis, it rose to 4.6% from -2.5% in October. Its share to total imports moderated to 55.6% in November from 57.1% in October.

Possible boost for Industrial Production. Solid growth in intermediate goods imports and strong exports in November could represent an increased demand for manufactured goods from abroad and subsequently higher manufacturing activities in November. Hence, we believe the upcoming November Industrial Production Index (IPI), released later in the week, may present similar upside bias.

The trade surplus for November narrowed to a still healthy level of RM9.0b from RM9.8b in October. The year-to-date trade surplus was RM78.6b and lower than the RM83.2b surplus recorded in the corresponding period of last year. Total trade grew 9.3% YoY following two consecutive months of yearly decline.

By major export destination, shipments to Japan fell at a softer pace of 1.4% YoY in November from -29.1% in October (8.3% share). In further signs of a pick-up in global demand, exports to the United States increased 9.9% YoY (9.2% share), to ASEAN was up 9.8% YoY (28.7% share), and to China was up 12.0% YoY (15.0% share).

OUTLOOK

Incipient recovery for exports. With the latest stronger than expected exports data, it now seems increasingly possible that 4Q16 could see an accelerated exports growth from the previous quarter. Though exports would likely moderate in December following the robust performance for the month, we view that a weaker ringgit and higher average crude oil price could help sustain growth momentum in December and the following months. The USDMYR rate averaged 4.46 in December compared to 4.28 in the corresponding month of last year, while Brent crude oil averaged USD54.9 per barrel in December compared to USD38.9 last year.

Potential upside for 4Q16. Given the current trajectory, exports could rebound to around 2.0% YoY in 4Q16 after registering a contraction of 2.3% in 3Q16. Hence, we foresee a potential upside, albeit marginal, to our 4Q16 GDP growth estimate of 4.3%. Nonetheless, we still maintain our whole year GDP growth target of 4.2%.

Rosier outlook in 2017. Going forward, we reiterate our view that Malaysia’s terms of trade would experience a brighter prospect in 2017 as global economy picks up momentum. Malaysia’s major trading partners including China, U.S. and Europe have seen some credible trend of growth recovery and the momentum is likely to extend well in 2017. Furthermore, we see the depreciation of the ringgit, stable global demand outlook for E&E products and a recovery in commodities prices to lift the exports growth higher this year. We thus project the exports to grow higher at 2.5% YoY for the whole of 2017.

Source: Kenanga Research - 9 Jan 2017