OVERVIEW

● December exports expanded by 4.8% YoY (Nov: +1.6%) just a tad lower than house estimate of 4.9% but beat consensus’ estimate of 2.4%. On a MoM basis, it fell by 1.9% (Nov: -11.9%) which was in line with our estimate as we had taken the que from the weak PMI performance. As total exports outpaced imports, the trade surplus surged to RM10.4b (Nov: RM7.8b) to reach a record RM120.3b for the whole of 2018 (2017: RM98.5b).

● Solid export growth in electrical & electronics (E&E), which rebounded by 14.2% YoY after it fell in November (-1.7%) contributed significantly to the month’s total export growth. In the 4Q18, E&E grew by 11.8% YoY (3Q18: +10.6%) a record high which could have been driven by the front-loading activity due to concerns on the trade war, boosting the export growth momentum. Overall, E&E exports grew 11.0% YoY in 2018 (2017: +19.2%).

● Meanwhile, commodity exports turned negative in December. It contracted by 3.2% YoY (Nov: +4.6%) weighed down by weak shipment of rubber, timber, palm oil and liquefied natural gas which fell by 15.7%, 19.2%, 19.3% and 2.7% respectively. We expect commodity exports to remain bleak, primarily driven by weak demand and lower prices for palm oil and its related products as the EU continue to campaign against palm oil. Meanwhile, the prospect of slower global growth would affect demand and exert downward pressure on petroleum prices which is expected to remain around or below USD60 per barrel this year.

● Exports to main destination namely Singapore and the US rose sharply by 12.2% and 13.5% respectively (Nov: +7.1% and -3.6% respectively) which indicates that US firms may have shifted a large portion of its source of imports from China to South East Asia to avoid higher tariffs. Consequently, export to China fell by 0.5% (Nov: +3.9%), suggesting that China’s economy could have slowed owing to the impact of the trade war and weaker domestic demand. Overall, total exports to the top three destinations namely Singapore, China and US posted a sharply lower growth of 5.3% for 2018 (2017: +19.4%), while its total share of exports shranked to 36.9% from 37.5% in 2017.

● Meanwhile, imports growth moderated to 1.0% YoY (Nov: +4.7%), coming in below consensus (+1.3%) but beating house estimate of -0.9%. The slowdown was attributable to a sharp decline in imports of capital goods (-21.7%). Meanwhile, imports of intermediate and consumption goods was up by 1.5% and 6.5% respectively (Nov: -0.4% and +1.2% respectively).

● On a quarterly basis, exports expanded by 8.0% YoY in 4Q18 (3Q18: +5.1%). Along with support derived mainly from growth in private expenditure, we maintain our view that GDP growth could have expanded to 4.8% in 4Q18 from 4.4% registered in the 3Q18.

● We expect 2019 would be a challenging year for Malaysia’s exports primarily weigh by the on-going trade tension between US and China, prospect of cooling global growth, China’s slowing economy, and sluggish demand for commodities. While China has been agressively supporting its domestic economy to prevent a hard landing, we are cautiously optimistic of a positive outcome from the on going trade talks between US and China. Compared to a sterling growth performance of 18.8% in 2017, total exports for 2018 grew at a slower pace of 6.7%, slightly lower than house forecast of 7.0%. For 2019, we forecast exports to grow between 4.0%-6.0%. This is in line with a slower projected GDP growth of 4.7% from an estimated 4.8% in 2018 on the back of slower global trade and economy.

Source: Kenanga Research - 31 Jan 2019