OVERVIEW

● Malaysia’s exports expanded by 7.6% YoY in June (May: +3.4%) below Bloomberg consensus of 11.5% but higher than house forecast of 6.7%. It, however, fell 4.2% MoM (May: -2.5%), confirming its YoY growth expansion was largely influenced by preceding year’s lower base.

● Electrical & electronics (E&E) and petroleum products contributed to the month’s exports growth. E&E exports, 38% of total exports, expanded by 6.9% YoY (May: +2.1%). On a MoM basis, E&E exports rebounded by 2.4% in June from -8.4% in the preceding month. Similarly, exports of petroleum products expanded by 2.0% YoY (May: 0.8%) as average crude price remained above USD70.0/barrel.

● Meanwhile, exports of commodities fell sharply by 18.2% YoY in June (May: -9.7%), a 20-month low. This is mainly attributable to lower exports of palm oil and liquefied natural gas (LNG). Exports of palm oil, fell sharply by 29.2% YoY (May: -24.2%), the lowest since February 2015, contributing -1.5 percentage points (ppts) to overall YoY exports growth. Similarly, exports of LNG fell sharply by 31.2% YoY in June (May: +61.0%), a 20-month low.

● By major country, exports to China remains healthy with a strong growth of 16.9% YoY in June (May: +7.4%) while export to the US declined by 1.9% YoY (May: -5.6%). The potential impact of trade war to Malaysia remains uncertain and we are currently monitoring closely as US-China trade war continue to escalate in July and August.

● Imports increased sharply by 14.9% YoY (May: +0.1%), exceeding house estimate of 6.0%. The month’s higher imports contributed by broad-based YoY growth rebound of imports of capital, intermediate and consumption goods at 14.1%, 3.1% and 4.9% respectively from -0.5%, -5.3% and -10.2% respectively in May.

● Consequently, the trade surplus sharply fell to 25.5% to RM6.0b from May’s RM8.1b, the lowest since May 2017. Overall, total trade bounced back with a stronger growth of 11.0% YoY in June (May: +1.8%).

● With the US and China trade war tension escalating we expect the risk to Malaysia’s 2H18 trade to be increasingly uncertain due to its position and exposure to the global supply chain particularly in electric & electronic (E&E) sector. Hence, we are expecting the 2H18 export growth to moderate to 3.0% (2H17: 17.0%) from 7.0% in the 1H08 thereby contributing to a lower 2H18 GDP growth forecasts of 5.0% versus 5.3% in the 1H18. All in we maintain our GDP growth forecast of 5.1% for the whole of 2018 (2017: 5.9%), slightly higher than the official 5.0%.

Source: Kenanga Research - 6 Aug 2018