OVERVIEW

• Exports bounced back in March to 2.2% YoY, recovering from the preceding month’s temporary anomaly of a 2.0% decline. The month’s export was close to Bloomberg’s median consensus estimate of 2.0% though it surpassed the house’s 1.0% estimate. It rebounded sharply MoM by 20.1% (Feb: -15.1%). For 1Q18, exports registered a sharp slowdown of 5.8% YoY from 4Q17’s 12.4%, indicative of a slower GDP growth during the quarter.
• Electrical and electronics (E&E) exports resumed on a positive growth trend following the preceding shorter working month’s 0.1% YoY contraction. However, given that March’s E&E exports merely registered a single-digit growth at 8.7% YoY, we are further convinced of our view that the tech-upcycle has reached its peak and exports growth will remain on a single-digit trend for 2Q18. On MoM basis, E&E exports rebounded strongly by 29.3% (Feb: - 22.3%), in line with the month’s sustainably high global semiconductor sales at 20.0% YoY (Feb: 21.0%).
• Strong crude petroleum exports mitigated March’s commodities growth decline to a smaller 1.1% YoY contraction (Feb: -14.8%). Crude petroleum exports growth surged 18.4% YoY (Feb: +3.0%), contributing a higher 0.7 percentage points (ppts) to the month’s overall exports growth (Feb: 0.1 ppts). According to the Department of Statistics, crude petroleum exports surged following an increase in both export volume and average unit value. Brent crude prices strengthened by 32.6% during the month, averaging at USD70.27/barrel (Feb: USD65.78/barrel). However, exports of other commodities including palm oil, natural rubber and LNG were frailer, hence capping the growth of commodities during the month. On a MoM basis, commodities exports growth jumped 25.5% (Feb: -17.7%).
• Imports registered a sharper decline at -9.6% YoY (Feb: -2.8%), sharply below the Bloomberg’s median consensus and house estimates of 3.2% and 3.0% contraction respectively. The month’s slowdown was broad-based across the imports of capital, intermediate and consumption goods and in line with the continued Ringgit appreciation during the month. The average Ringgit appreciated by 0.24% following February’s 1.15% appreciation. The higher Ringgit value possibly lowered the translation of the value of the imports during the month.
• Consequently, trade surplus widened to RM14.7b (Feb: RM9.0b), a contraction of 0.63% from February. Meanwhile, total trade contracted further by 3.5% YoY to RM154.2b. On a MoM basis, total trade surged by 17.1%.
• March’s rebound in exports failed to allay our view that exports will moderate in 2018. Our view is largely based on moderating global semiconductor sales, which has contracted by 2.5% QoQ in 1Q18. We are also observing sharp slowdown in exports growth of key hi-tech economies in April, including South Korea and Taiwan, potentially signalling the reversal of the global tech upcycle. Moreover, on a 3 month moving average basis (3MMA), exports have been on a moderating trend for the past six months, hitting 5.8% YoY in March, lowest since Dec 2016.
• Furthermore, manufacturing indicators are pointing to easing growth ahead. The IHS Markit PMI has reported further deterioration in April as lower external demand continues to weigh on new orders and production. We are also wary of the effect of the US tariffs on China’s technological goods and its indirect effect on Malaysia’s exports of E&E subcomponents. Based on the 1Q18 exports performance, we maintain our expectation that GDP growth would continue to moderate which we estimate to record a 5.7% growth in the 1Q18 (4Q17: 5.9%).and subsequently continue to taper towards the year end. We maintain our GDP growth forecast of 5.5% for this year (2017: 5.9%).

Source: Kenanga Research - 7 May 2018