● October exports tumbled to a 3-year low and mirrored September revised -6.7%, beating market expectation (consensus: -12.3%) but not that far off house forecast of -9.4%.

• MoM: rebounded to 7-month high (16.6%; Sep: -4.5%).

● Product-wise, the weak performance was due to lower shipments of commodities and electrical & electronics (E&E) goods

• Commodities (-24.6%; Sep: -16.3%): fall to almost 4-year low mainly due to contraction in exports of palm oil (- 9.8%; Sep: -9.3%) and crude petroleum (-50.5%; Sep: -45.8%) following lower export volume and Average Unit Value (AUV).
• E&E (-3.2%; Sep: -7.4%): eased albeit at a slower pace due to a drop in export of parts and accessories for office machines (-0.7%; Sep: -18.7%) and other (-16.2%; Sep: -18.3%).
• Going forward, we expect the commodities sector to remain in a contraction as a result of tariff hit by India on Malaysian palm oil and OPEC+ supply cuts compliance.

● By destination, the fall in exports was attributable to faltered demand from key regional trading partners

• Demand from Japan (-20.1%; Sep: -1.7%) and China (-11.0%; Sep: -3.0%) fell following deterioration in global growth outlook and high base effect.
• Surprisingly, export to Hong Kong rebounded marginally (0.1%; Sep: -26.5%), amid prolonged anti-government protests, which erupted in June 2019.
• Export to the US grew by 2.7% (Sep: 6.6%) albeit at a slower pace in 7-month, but year-to-date (ytd) it expanded to 4.4% (Jan-Oct 2018: 1.9%), and its share to total exports also increased to 9.6% (2018: 9.1%).

● Imports are back in negative territory, it fell sharply after a quick turnaround in the preceding month (-8.7%; consensus: -7.0%; KIBB: -6.4%; Sep: 2.4%)

• Led by contraction in the purchased of capital goods (-11.5%; Sep: 7.0%), followed by intermediate (-5.1%; Sep: 11.1%) and consumption goods (-5.0%; Sep: 15.1%).
• The contraction in imports echoes our view that underlying weakness in domestic demand persists, which reflected in sluggish growth of retained imports (-8.2%; Sep: 10.3%).

● Trade surplus jumped to a record high (RM17.3b; Sep: RM8.4b) mainly due to a steeper drop in imports compared to exports.

● 2019 exports forecast maintained at a range of -1.0% to -2.0% (2018: 7.3%, YTD: -1.8%)

• Downside risk remains largely on the unresolved US-China trade spat, Brexit, an extended technology cycle downturn and prolonged riots in Hong Kong.
• External headwinds and a softer demand would exert pressure on domestic demand, weighing GDP growth to moderate to 4.2% in the 2H19 (1H19: 4.7%).
• This would mean that GDP growth for 2019 is projected to slow to 4.5% (2018: 4.7%) and further reduced to 4.3% in 2020.

Source: Kenanga Research - 5 Dec 2019