Overview

? PMI rose to 43-month high. Malaysia’s Manufacturing Purchasing Managers’ Index (PMI) surged to 43-month high of 52.0 in November, signifying a return to the expansion territory as indicated by the higher than 50.0 reading.

? New orders expansion a boost for purchasing and employment. New orders, supported by improving domestic and external demand, grew at the fastest pace since Oct-14. Consequently, producers revved up purchasing activities and hired more workers for the month.

? Output growth strongest in three years. Following the surge in new orders, the output sub-index expanded at the fastest pace in nearly three years.

? Price pressures intensified. The increase in raw material prices was sharp overall, leading firms to charge their customers a higher price for their products. Meanwhile, firms saw some profit erosion as they absorb a portion of the rising costs.

? Potential boost to economic growth. The positive November PMI reading supports our view of a sustained economic growth trajectory well into 1H18. The robust new orders and increased business activities may continue to support domestic demand sufficient to provide a further lift to Malaysia’s 4Q17 GDP.

? Monetary tightening likely in 1Q18. The increasingly convincing narrative of a sustainable growth in the economy supports the view of a possible rate hike as early as in 1Q18.

PMI at 43-month high. Malaysia’s manufacturing Purchasing Managers Index (PMI) surged to 52.0 in November after two consecutive months of sub-50 readings (Oct: 48.6). November’s reading was the highest since April 2014, which can be seen as a timely recovery for the manufacturing sector that has mostly stayed in the contraction mode (sub-50) in the past two years.

Robust output growth. The output sub-index extended its growth momentum in the previous three months, expanding at the quickest pace in almost three years. The Markit’s report mentioned that the strength in the output growth mainly comes from higher incoming new work and orders.

New orders expansion strongest in three years. Encouragingly, November saw new orders growth turning positive for the first time since April. Furthermore, new orders expanded at the fastest rate since October 2014; a positive sign that underlying demand conditions has improved in tandem with stronger economic growth trajectory found at home and abroad. New export orders, a gauge of external demand, grew at the most vigorous rate in more than four years, driving the overall new orders growth in the industry.

Source: Kenanga Research - 5 Dec 2017